CASH 2018 Special Proxy Statement

CRESTMARK BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 – SUBORDINATED DEBT AND OTHER BORROWINGS (Continued) by CBI, and are redeemable at par with regulatory approval after five years. The interest rate is reset quarterly at distribution dates in March, June, September and December. The interest rate was 5.75% as of December 31, 2017. The Corporation has the option to defer interest payments on the subordinated debenture from time to time for a period not to exceed 5 consecutive years. CBI issued $750,000 of subordinated debentures, with terms identical to the securities, to the trust. In 2016, the Corporation redeemed 20,000 shares of trust preferred securities in exchange for $500,000 of subordinated debentures at a cost to the Corporate of $300,000 resulting in a gain on extinguishment of debt of $200,000 recorded in the consolidated statements of income. At December 31, 2017, the remaining outstanding balance of subordinated debentures related to this issuance was $250,000. Crestmark Capital Trust I, a business trust formed by CBI, sold 3,250 of floating rate capital securities of the trust at $1,000 per trust preferred security in a June 20, 2005 offering. CBI issued $3,351,000 of subordinated debentures to the trust in exchange for the ownership of all of the common securities of the trust and the proceeds of the preferred securities sold by the trust. The subordinated debentures bear interest at LIBOR plus 3.00%, have a stated maturity of 30 years and are redeemable by the Corporation at par, with regulatory approval, after five years. The interest rate is reset quarterly at distribution dates in February, May, August, and November. The interest rate as of December 31, 2017 was 4.45%. The Corporation has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed 5 consecutive years. CBI is not considered the primary beneficiary of these trusts (variable interest entities), therefore they are not consolidated in CBI’s consolidated financial statements, but rather the subordinated debentures are shown as a liability on the consolidated balance sheets. The Corporation’s investment in the common stock of the trusts is $101,000 and is included in other assets on the consolidated balance sheets. The subordinated debentures may be included in Tier I capital (with certain limitations applicable) under current regulatory guidelines and interpretations. The Corporation has an existing line of credit with another financial institution for $10,000,000 at both December 31, 2017 and 2016. At December 31, 2017 there was $7,000,000 outstanding on the line of credit. There was no outstanding balance on the line of credit at December 31, 2016. The line of credit matures on August 26, 2018. The interest rate on the line of credit is variable based upon current market rates. At December 31, 2017 the interest rate was 4.00 percent. To maintain the line of credit, certain financial covenants are required to be achieved by the Corporation. As of December 31, 2017 and 2016, the Corporation was in compliance with these covenants. In August 2017, the Corporation entered into a note payable with the same financial institution for $5,000,000 payable in quarterly installments of principal beginning March 1, 2018. The interest rate on the note is variable based upon current market rates. At December 31, 2017 the interest rate was 4.00 percent. The note matures on August 22, 2022. F-30