CASH 2018 Special Proxy Statement

CRESTMARK BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities available for sale in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment in the consolidated statements of income. For securities available for sale that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the consolidated statements of income and 2) OTTI related to other factors, which is recognized in other comprehensive income (loss). The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. In 2017, 2016 and 2015, there were no other-than- temporary impairment recorded. Loans Originated for Sale: The Corporation originates commercial loans under government programs overseen by the United States Small Business Administration (SBA) and United States Department of Agriculture (USDA) and sells the guaranteed portion in the secondary market. Gains or losses on sales are recorded in gain on sale of government guaranteed loans in the consolidated statements of income. Loans originated and held for sale are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments to investors. As of December 31, 2017 and 2016, the Bank serviced $96,034,171 and $71,985,756, respectively in outstanding principal balance of loans for others. The value of originated servicing rights at year-end 2017 and 2016 was immaterial to the Corporation. Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan, lease and receivables fees and costs and an allowance for credit losses. Interest income is reported on the interest method and includes amortization of net deferred loan, lease and receivables fees and costs over the loan term using the level-yield method without anticipating prepayments. Accounts Receivable Factoring: The Corporation withholds a contingency reserve which is the difference between the fair value of the invoice amount and the amount advanced. A contingency reserve is withheld for nonpayment of factored receivables, service fees and other adjustments. Interest income on factored receivables is recognized according to the terms set forth in each factoring agreement. Typically, factoring service fee revenue is recognized into income over specified time periods, until the receivable is paid. Revenue is calculated on the gross receivable. When the factored receivable is collected, the Corporation remits to its client the contingency reserve that was withheld at the date of purchase, less recognized service fees and other adjustments. Shortfalls that cannot be recouped from the client are charged to the allowance for credit losses. The Corporation may elect to alter the foregoing fee structure if the specific conditions warrant such action. Leases: The Corporation accounts for each lease by either the direct financing, sales-type, or operating method (hereinafter referred to as “accounting methods”). Revenue, cost, and resulting profit are recognized during all of the periods within the lease term. The allocation of profit among the periods within a lease term will vary depending on which accounting method is applied. For all types of leases, the determination of profit considers the estimated fair market value of the equipment at lease termination, commonly referred to as “residual” value. Residual values are estimated at the inception of the F-9