CASH 2018 Special Proxy Statement

CRESTMARK BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) lease. If subsequent to the date a lease is entered into, the Corporation determines that the residual will be less than the amounts originally estimated, a provision for write-downs of residuals will be recorded in the consolidated financial statements. There were no residual write downs in 2017, 2016 or 2015. To the extent the actual residual at termination of the lease is different from its carrying amount, a gain or loss will be recorded on the subsequent settlement of the residual asset. Direct Financing and Sales-Type Leases: These leases transfer substantially all of the benefits and risks of equipment ownership to the lessee. Profit recognition under these two accounting methods is similar, except that the sales-type method recognizes dealer profit at inception. Under the sales-type method, dealer profit is recognized at lease inception by recording revenue and costs. Revenue consists of the present value of the minimum lease payments. Cost consists of the equipment’s carrying value plus initial direct costs, less the present value of its estimated residual value. Present value is determined using the interest rate implicit in the lease. Direct financing and sales-type leases are carried at the present value of the future minimum lease payments, including guaranteed residual values, plus the present value of the estimated unguaranteed residual value of the equipment at the end of the lease term. Unearned income represents the difference between the gross future minimum lease payments receivable plus estimated residual values and the carrying value of direct financing and sales-type leases. In each period, unearned income is amortized and financing income is recognized as a constant percentage return based on the lease’s carrying value. Equipment on Operating Leases: Operating lease revenue consists of periodic payments on equipment rentals. The cost of equipment is recorded as leased assets and is depreciated on a straight-line method over the lease term to the Corporation’s estimate of the fair market value of the equipment at lease termination. Operating lease revenue and depreciation expense are recorded on a straight-line method. Lease Equipment Sales: Off-lease sales represents revenue from the sale of equipment previously on lease. Off-lease sales consist of both sales in place to the existing lessee and sales to third parties for equipment returned off lease. Sale of equipment off lease is recorded when title is transferred. Sale of equipment acquired for sale is recorded when shipped to the customer. Revenue and costs associated with the sale of lease equipment is included in noninterest income and noninterest expense on the consolidated statements of income. Acquired Lease Residuals: The Corporation acquired a portfolio of lease residual assets in 2014. The balance at the acquisition was $59,025,615 which was the estimated fair value of the leased assets at the termination of existing direct financing and sales-type or operating leases. Fair value was based on estimated post-lease cash flows including post-lease rents, re-lease agreements and proceeds from the sale of the leased assets discounted to estimate fair value. Management evaluates acquired lease residuals for impairment with any impairment recorded as a charge to income in the consolidated statements of income. During 2016, a $600,000 impairment charge was recorded. There was no impairment charge recorded in 2017 or 2015. Income Recognition: Recognition of income on loans, leases and receivables is generally discontinued at the time the contract is 90 days delinquent unless the loan, lease or receivable is well-secured and in process of collection. Past due status is based on the contractual terms of the contract. In all cases, income recognition ceases and loans, leases or receivables are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. F-10