SEPTEMBER 2012

SBA Overview

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Presenter –Rich Bradshaw

Richard Bradshaw Head of SBA TD Bank, America’s Most Convenient BankO (864) 552-9088richard.bradshaw@td.com

Based in Greenville, S.C., Bradshaw manages TD Bank’s expanding SBA team in delivering competitively-priced, government-backed financing programs that help small businesses grow and succeed. He steers the bank’s efforts to achieve SBA portfolio growth and become a top SBA lender throughout the Maine to Florida footprint. TD Bank is currently the 7th largest SBA lender in the U.S. (as of April 30, 2012). Bradshaw brings more than 20 years of experience in the lending field to TD Bank. He is a graduate of the U.S. Air Force Academy with a Bachelor of Science Degree in Management and a Masters of Business Administration from Pepperdine University. Rich serves on the Board of Directors for Greenville Literacy Association, Inc

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• Headquarters

Toronto, ON Canada• Asset Size

$773.2 B• Deposits

$470.0 B• Loans

$394.3 B• Customers

22 MM• NYSE Traded

TD• Market Capitalization*

$75.8 B• Founded

1855• Bank Branches

2,441

As of April 2012

Presenter – Julie Huston

Julie Huston SBA Division President U.S. BankO (858) 530-9700julie.huston@usbank.com

As President of U.S. Bank’s SBA Division, Julie Huston oversees Small Business Administration lending from San Diego, California. Huston has been part of the SBA lending community since 1986. Her passion for small business has translated into building programs, developing products, improving delivery systems and creating methods to ensure that small businesses receive the funding and services they need to succeed. Under Julie’s leadership, U.S. Bank is currently ranked as the 3rd largest SBA lender in the U.S. (as of June 30, 2012). Before joining U.S. Bank in 2010, she held various senior management roles at leading financial services organizations. Julie serves on the Board of Directors for the National Association of Government Guaranteed Lenders and CDC Small Business Finance.

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U.S. Bancorp Businesses

2Q12 Dimensions• Asset Size

$353 B• Deposits

$241 B• Loans

$216 B• Customers

17.4 MM• NYSE Traded

USB• Market Capitalization*

$63 B• Founded

1863• Bank Branches

3,080• ATMs

5,085

* As of July 31, 2012 5

U.S. Banking Industry

Billions of Dollars

Q1 2012All

Insured Banks

Commercial Banks

Savings Banks

Agriculture Banks

Number of FDIC Insured 7,307 6,263 1,044 1,491

Total Assets $ 13,926 12,781 1,145 212

Total Loans $ 7,411 6,738 673 125

Domestic Deposits $ 8,826 7,948 878 177

Equity to Assets% 11.27 11.24 11.56 11.29

Percent Profitable % 89.7 90.2 86.2 96.0

Source: FDIC March, 2012 6

U.S. Banking Industry - Performance

Q1 2012All

Insured Banks

Commercial Banks

Savings Banks

Agriculture Banks

Average ROA (Qtr) % 1.02 1.02 0.99 1.27

Average ROE (Qtr)% 9.07 9.12 8.52 11.21

Net Interest Margin(Qtr)% 3.52 3.54 3.31 3.76

Net Charge Off Rate – All Loans (Qtr)%

1.17 1.17 1.19 0.17

Source: FDIC March, 2012 7

What is the U.S. Small Business Administration (SBA)?

Created in 1953 Independent agency of the United States federal

government

Mission:To aid, counsel, assist and protect the interests of small

business concerns

To preserve free competitive enterprise

To maintain and strengthen the overall economy of the nation

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Why Use SBA?

Why do Banks use the SBA’s Guaranty?

1. Borrower needs a long term loan that exceeds internal credit requirements of the bank

2. Borrower does not meet lender’s collateral requirements

3. Borrower can not meet the lender’s “down payment” requirements

4. Borrower is outside the established limits of the range of the credit risk of the bank

5. Borrower is a start up business or one with no borrowing history

6. Loan is in an industry with which the lender is comfortable

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The Value of the SBA Guaranty

Example 1 Example 2 Example 3Loan Amount $500,000 $1,000,000 $5,000,000Guaranty Purchase @ 75% $375,000 $750,000 $3,750,000Remaining Exposure $125,000 $250,000 $1,250,000

Collateral Recovery $0 $700,000 $3,000,000Government Gty @ 75% $0 $525,000 $2,250,000US Bank Gty (25%) $0 $175,000 $750,000

Total Recovery $375,000 $925,000 $4,500,000USB Loss $125,000 $75,000 $500,000Loss % of Loan Amount 25% 8% 10%

Example 1 Example 2 Example 3Loan Amount $500,000 $1,000,000 $5,000,000Guaranty Purchase @ 75% $375,000 $750,000 $3,750,000Remaining Exposure $125,000 $250,000 $1,250,000

Collateral Recovery $0 $700,000 $3,000,000Government Gty @ 75% $0 $525,000 $2,250,000US Bank Gty (25%) $0 $175,000 $750,000

Total Recovery $375,000 $925,000 $4,500,000USB Loss $125,000 $75,000 $500,000Loss % of Loan Amount 25% 8% 10%

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Historical Loss Rates

For the quarter ending March 31, 2012, the past 12-month actual charge-off rate was 3.2%, which is down from a high of 3.5% in September 2010

SBA Total Portfolio Charge-Offs(past 12-month actual charge-off rate)

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%

3.31.12 12.31.11 9.30.11 9.30.10 9.30.09

Source: SBA Lender Portal 1

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SBA and Special Interests

Special SBA Loan Programs include: Disaster lending Women and minority lending

Counseling and training opportunities: Women Business Centers Veterans Business Outreach Centers SCORE

Entrepreneurial development for SMEs Small Business Development Centers Partnerships with other special interest groups

(i.e. Native American Affairs)

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SBA Loan vs. Conventional Loan

The SBA is primarily a guarantor of loans under the 7a program and also makes direct commercial second mortgages under the 504 program

The SBA helps small businesses by providing loan terms that exceed conventional lending criteria (amortization, equity, etc)

Not all companies are eligible for a SBA enhanced loan. Must meet certain size criteria and business type 1

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What types of SBA loans are available?

Two main loan programs:

Section 7(a) Loan Guaranty Program

Section 504 Certified Development Company Program

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7(a) Loan Program

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Section 7(a) Loan Guaranty Program

Provides for broad financing needs of small businesses, including startups and existing small businesses

Maximum Loan Amount = $5 million Maximum Term:

Commercial Real Estate (CRE) = 25 years Equipment = 15 years W/C= 7 to 10 years

Rate is negotiable but is subject to SBA maximums (~6.0% today)

7(a) Express Product maximum loan amount= $350,000

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How can proceeds of a 7(a) loan be used?

Purchase land or buildings Construct commercial buildings Expand or renovate facilities Finance receivables and supplement working

capital Purchase machinery, equipment, fixtures, and

leasehold improvements Refinance existing debt under some

circumstances Purchase an existing business

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Ineligible use of 7(a) proceeds:

For a non-sound business purpose To repay delinquent state or federal withholding

taxes or other funds that should be held in trust or escrow

To make a partial change of ownership or change in the business that will not benefit the business

To refinance existing lender debt where the SBA would be placed in an inferior position

To permit reimbursement of funds owed to any owner of the business

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SBA 7(a) – Advantages to the Customer

Goal is to enhance cash flow

Longer Terms

No Balloon Payments/Calls

Fixed Rates (certain lenders only)

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Safety: 75% guarantee from

the U.S. government 7(a) Express = 50%

Product Differentiation

Targets: Doctors Dentists Veterinarians CPAs Real Estate Franchises Business Expansion

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Advantages to the Bank

Annual 7(a) Approvals

Year Number of Approvals

Amount of Approvals

FY 2009 44,222 $9.3B

FY 2010 52,936 $12.6B

FY 2011 49,288 $18.1BYTD 2012

(June 2012)32,934 $10.8B

Source: SBA.gov and NADCO 2

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504 Loan Program

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SBA 504 Example

$1,000,000 – Commercial Real Estate Purchase

$100,000 – Equity from borrower (10%)

$500,000 – Bank 1st mortgage (50% LTV), fixed or variable (conventional)

$400,000 – SBA debenture, 2nd mortgage (90% LTV), fixed for 20 years – 100% U.S. Gov’t Guarantee

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Terms of 504 Loan (Debenture)

Maximum Loan Amount = $5.5MM (2nd Mortgage)

Maximum Term = 20 yearsInterest rates are pegged to an increment

above the current market rate for 5 and 10-year Treasury issues (currently ~ 4.7%)

Fees normally are approximately 3% of the debenture

Generally the project assets are used as collateral

Personal guarantees of the principal owners required

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Eligibility for 504 Loan

Must be operated for profit

Must have tangible net worth of less than $15 million

Must have an average net income of less than $5 million after taxes for preceding two years

Job creation criteria must be met

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Borrower Benefits of a 504 Loan

Lower Down-payment 10-20% of total project cost 10% Baseline

Additional injections are cumulative

Therefore, minimal equity requirements

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Section 504 Certified Development Company Program

Provides financing for “bricks and mortar” - the purchase of real estate and fixed assets

Funds cannot be used for working capital or inventory

Requires cooperation of a certified development company (“CDC” – Privately held agencies)

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Annual 504 Loan Approvals

Year Number of Approvals

Amount of Approvals

FY 2009 6,608 $3.8BFY 2010 7,733 $4.4BFY 2011 6,810 $4.0B

YTD 2012 (June 2012)

6,382 $5.6BSource: SBA.gov and NADCO 2

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