CASH 2018 Special Proxy Statement

CRESTMARK BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Interest accrued but not received for loans, leases, and receivables placed on nonaccrual is reversed against interest income. Interest received on such loans, leases and receivables is accounted for on the cash-basis or cost- recovery method, until qualifying for return to accrual. Loans, leases and receivables are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Concentrations of Credit Risk: Most of the Corporation’s customers are drawn from throughout the United States. However, customers in 6 states; Texas, Michigan, California, Florida, Illinois, and Ohio comprise 65% of total loans, leases and receivables at year end 2017 with the largest state concentration being 17% in the state of Texas. The Corporation’s customers are diversified with respect to industry but 35% of loans, leases and receivables outstanding at year end 2017 are to customers in the truck transportation, merchant wholesalers and durable goods, administrative support services, and support activities for transportation. Accordingly, the Corporation’s exposure to credit risk is affected by changes in the economy affecting the geographic locations and industries within which its customers operate. Allowance for Credit Losses: The allowance for credit losses is a valuation allowance for probable incurred credit losses related to loans, leases and receivables, increased by the provision for credit losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using past loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, leases and receivables, but the entire allowance is available for any loan, lease or receivable that, in management’s judgment, should be charged-off. Losses are charged against the allowance when management believes the uncollectibility of a loan, lease or receivable balance is confirmed. The allowance consists of specific and general components. The specific component relates to loans, leases or receivables that are individually classified as impaired. A loan, lease or receivable is impaired when full payment under the terms of the agreement is not expected. If a loan, lease or receivable is impaired, a portion of the allowance is allocated so that the loan, lease or receivable is reported, net, at the present value of estimated future cash flows using the asset’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, leases and receivables such as consumer loans are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures unless classified as a troubled debt restructuring. Troubled debt restructurings (TDRs) are loans, leases or receivables, the terms of which have been modified and a concession granted to debtors in financial difficulty. TDRs are impaired and are measured for impairment based on the present value of estimated future cash flows using the contract’s effective rate at inception. If a TDR is considered to be collateral dependent, impairment is measured based upon the fair value of the collateral. For TDRs that subsequently default, the Corporation determines the amount of reserve in accordance with the accounting policy for the allowance for credit losses on loans individually identified as impaired. The general component covers all other loans, leases and receivables and is based on past loss experience adjusted for current factors that impact credit risk including consideration of the following: levels of and trends in delinquencies and impaired loans, leases and receivables; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans, leases and receivables; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and F-11