CASH 2018 Special Proxy Statement

CRESTMARK BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations and Principles of Consolidation: The consolidated financial statements include Crestmark Bancorp, Inc. (CBI) and its majority owned subsidiaries, together referred to as “the Corporation” after the elimination of intercompany transactions and balances. Crestmark Bank (the “Bank”), a wholly owned subsidiary of CBI, owns 100% of Crestmark Financial Corporation (CFC), Crestmark Partner Services, Inc., Crestmark Commercial Capital Lending, LLC, Crestmark TPG, LLC, Crestmark Westgate, LLC, Crestmark Equipment Finance, Inc.(CEF), and 80% of CM HELP, LLC, Capital Equipment Solutions, LLC, CM TFS, LLC, CM Sterling, CM Southgate and CM Southgate II. The Corporation provides working capital solutions through the Bank, which is headquartered in Troy, Michigan, with regional offices in Boynton Beach, Florida; Franklin, Tennessee; Baton Rouge, Louisiana; New York City, New York; Los Angeles, California; and Canada. The Bank also has sales production offices in various locations outside its regional offices. The Bank is a cashless bank and primarily derives its funding from certificates of deposit. Its primary lending products are commercial asset based loans, leases, and accounts receivable purchasing (factoring) both discount and traditional. In 2004, the Bank entered into a venture with H.E.L.P. Financial Corporation (HELP), a Michigan hospital debt financing institution, to form CM HELP, LLC. The Bank holds an 80% majority interest in the entity and HELP owns 20%. The purpose of the transaction was to increase both investors’ hospital financing portfolios. As part of the arrangement, HELP collects the payments on the loans and remits the Bank’s portion via a correspondent bank lockbox. HELP and the Bank share equally in the profits from the venture. In 2011, the Bank entered into a venture, Capital Equipment Solutions, LLC, which originates equipment term loans. The Bank owns an 80% interest in the entity and shares profit or loss equally with its venture partners. In 2012, the Bank entered into three ventures, CM TFS, LLC, which originates high-tech equipment leases, CM Sterling which originates smaller-dollar factoring relationships, and CM Southgate which originates leases on automobiles, tractors, and tractor trailers. The Bank owns an 80% interest in each venture and shares profit or loss with its venture partners equally. In 2014, the Bank entered into a venture, CM Southgate II, which originates leases on automobiles, tractors, and tractor trailers. The Bank owns an 80% interest in the venture and shares profit or loss with its partners equally. During 2017, CM Southgate was liquidated and any remaining assets were merged into CM Southgate II, ownership and shares of profit or loss remains unchanged. Use of Estimates: To prepare consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided, and actual results could differ. Cash Flows: Cash and cash equivalents includes cash, deposits with other financial institutions under 90 days, and federal funds sold. Net cash flows are reported for loans, leases and receivables, leasehold improvements and equipment transactions, interest-bearing deposit transactions and federal funds purchased. Subsequent Events: The Corporation has evaluated subsequent events for recognition and disclosure through March 19, 2018 which is the date the consolidated financial statements were available to be issued. Securities Available for Sale: Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income (loss), net of income tax expense. Purchase premiums and discounts are recognized in interest income using the level-yield method without anticipating prepayments. Realized gains or losses on the sale of securities available for sale are recorded in noninterest income on the trade date and are determined using the specific identification method. F-8