Board of Directors

EVP - Chief Credit Officer

Credit Administration

Loan Officers

Loan officers are the first line of defense for gathering and analyzing accurate and timely information regarding credit risk. Therefore, loan officers, with the support of Credit Administration, are responsible for the day-to-day monitoring and classification of commercial and commercial real estate credits. To accomplish this, the loan officers shall: 

• Maintain an appropriate level of contact with the client, obtain current financial information concerning the client, and evaluate the strength of the market in which the client operates and other relevant factors. 
  • Based on this information, the responsible loan officer, with the assistance of Credit Administration, will assign a grade to each commercial loan within his/her portfolio. 
• Have responsibility for monitoring and reviewing the suitability of ratings assigned to relationships under his/her management on an ongoing basis and for making changes in a timely manner.  
• Insure that appropriate documentation is maintained in the credit file and core system for any rating changes. 

CCB Internal Audit Department

Commercial Credit and Commercial Real Estate Loans

Commercial credit and commercial real estate loans are the primary focus of the asset classification policy due to the size and unique characteristics of each loan. Commercial real estate portfolios consist primarily of owner occupied commercial property loans, multifamily secured permanent loans, residential and commercial office construction and permanent loans, and land development loans. Generally, all of these assets are primarily dependent upon the income or cash flow from operations, income or cash flow from the collateral, sale of the collateral, or refinancing by another lender for their primary source of repayment. 

Each commercial credit or commercial real estate loan is assigned a grade by the sponsoring loan officer at origination. At all times the grade is to accurately reflect the apparent level of risk associated with the loan. Whenever a loan officer becomes aware of information which may adversely affect the quality of a loan, the loan officer is required to update the applicable loan file as soon as possible. Similarly, upon receipt of information which may warrant the loan to be upgraded, the loan officer is to request an upgrade from Credit Administration. 

After considering all applicable risk attributes, the loan officer assigns an overall rating to the loan. The loan officer should apply the rating that best fits the facility and relationship under consideration after considering all the factors and characteristics. The nine risk rating attributes used by Capital City Bank have been weighted according to importance in the overall risk assessment. Risk attributes serve as a guide in the rating process and should not substitute for sound, well-reasoned and documented judgment in arriving at the appropriate risk grade. The risk rating will be reflected on the loan memo for all new credits and all renewals. 

Other loans, which are not scheduled for renewals or which do not have balloon payments, should be reviewed at least annually for appropriate risk rating assignments. Annual reviews are conducted by Credit Administration on a cumulative relationship exposure basis as follows:  

• Commercial real estate secured loans of $2.0 million or more
• Loans to municipalities of $2.0 million or more
• All other collateral types of $1.0 million or more
• On-demand loans of $0.25 million or more

Residential Real Estate Loans

Residential real estate loans include loans which are secured by owner occupied residential property. Also included are loans to clients to finance 1-4 family residential properties where lease income is not the primary source of cash flow for the client. Residential loans may be secured by a senior lien or a junior lien, and the purpose for the loan may be the purchase or improvement of the property or the refinance of other obligations. 

Residential loans generally are underwritten as described in the Consumer Credit Policy and are secured by the value of the real estate collateral. The primary source of repayment is the client’s personal income. Residential loans, including HELOCs, are to be classified by using the past due report on a monthly basis and will be classified as a portfolio rather than individually. Residential real estate loans which are 60 or more days past due, will be classified as “7” (Substandard). An evaluation of an individual residential loan may be considered if the client is a multiple loan client with both commercial and residential loans. 

Loans to clients that are in the business of building speculative houses will be reviewed and rated as commercial loans, even though the collateral is residential real estate. 

Consumer Loans

Other Real Estate

Letters of Credit and Unfunded Commitments

Reporting Requirements

Watch List loans (Risk Rating 4) are be subject to semi-annual Watch List Report submissions prepared by the loan officer and submitted to credit administration for review. This report will summarize the current status of the client with specific updates on areas of criticisms noted. All watch list relationships of $500,000 or more will be subject to the reporting requirement. 

Loans rated Special Mention (Risk Rating 5) or worse (criticized) are subject to quarterly Action Plan reporting requirements for business loan exposures of $250,000 or more. These plans will provide for a detailed review of client position, update of current events, and suggested plan to remove the basis for criticism where possible.

Risk Rating #1 - Exceptional

Assets of this grade are of the highest quality credits, significantly exceed all of the Bank’s underwriting criteria, and are virtually absent of significant credit risk. Assets of this grade provide superior protection for Capital City Bank through the paying capacity of the client and the value of the collateral. There are no policy exceptions and the loan is properly structured. The following risk rating attributes may be present: 

• All financial and collateral information required by the bank is in file.
• The client has an excellent banking relationship that is at least 3 years old and is known to meet all obligations in a timely manner. 
• The experience and success of senior management is outstanding. Management understands all facets of the business and management succession has been adequately addressed.
• Market is mature, growing and stable; positive trends are expected to continue.
• Financial trends are consistent and financial statements compare favorably with industry standards; cash flow exceeds that required by underwriting guidelines by 30%, and all covenants are comfortably complied with. The client has excellent liquidity and profitability. 
• Collateral is of general purpose, in good condition, and marketable. Loan/value ratio is 20% below that required by underwriting guidelines.
• Guarantor is liquid and has consistent, diversified sources of cash flow. There are no other material contingent liabilities.
• Loans secured by liquid collateral, such as certificates of deposit, reputable bank letters of credit, or other cash equivalents; loans that are guaranteed or otherwise backed by the full faith and credit of the United States government or an agency thereof, such as the Small Business Administration; or loans to any publicly held company with a current long-term debt rating of A or better.

Risk Rating #2 - Above Average

 Assets of this grade are of good quality, exceed the Bank’s underwriting criteria, and evidence a below average level of credit risk. There are no material exceptions to policy and the loan is properly structured. The following risk rating attributes may be present: 

• All financial and collateral information required is in file, it is just less detailed. 
• The client has a good relationship with the bank and provides information in a timely manner. The direct relationship is more limited than that of a #1 rating. Financial commitments are met on a timely basis. 
• Experience and success of management is superior. Management depth has been addressed. 
• Market historical trends have been cyclical; however, market is currently growing and stable.
• Financial trends are favorable and the financial statements compare favorably with industry standards; cash flow exceeds that required by underwriting criteria by 15%, and all covenants are complied with. The client has above average liquidity and profitability.
• Collateral is of general purpose, in good condition, and an identifiable market exists; loan/value ratio is 10% below that required by Bank’s underwriting criteria. 
• Guarantor has recurring cash flow, but it may be less predictable. There is good liquidity evidenced on the personal financial statement. There may be material contingent liabilities, but they are supportable. 

Risk Rating #3 - Acceptable

Assets of this grade are of good quality credits, conform to a majority of the underwriting criteria and evidence an acceptable level of credit risk. To the extent that a loan may not meet all underwriting criteria, specific factors exist to mitigate this risk. Policy exceptions may exist, but are approved by Credit Administration. The following risk rating attributes may be present: 

• Financial and collateral documentation may be less comprehensive and of less quality, but all minimum information required is present in file. 
• Client has acceptable banking relationship, and payments are timely. Information is provided in a timely manner. 
• Experience and success of management have been proven. Management may lack knowledge of all aspects of business, but has addressed limitations. 
• Market is new and/or historically cyclical; there is no indication that current cycles will differ from past trends. 
• Financial trends exhibit moderate inconsistency, but financial statement ratios are comparable to industry norms; capacity to repay meets criteria and appears adequate. Cash flows may be slightly cyclical, but do not appear to be problematic. Liquidity and profitability are acceptable. 
• Collateral is of general purpose, reported to be in good condition, and there is an identified market. Loan/value ratio meets that required by Bank’s underwriting criteria. 
• Guarantor has recurring cash flows, but it is mostly related to the venture being financed. There is not material liquidity evident on the statements, but assets are generally marketable. May have material contingent liabilities, but all appear supportable. 
• Loans supported by financial statements (audited or unaudited) that indicate average or slightly below average risk and having some deficiency or vulnerability to changing economic conditions; however any risks or deficiencies noted are deemed to be offset by appropriate mitigating factors, or are not deemed material to the overall risk profile and appropriately documented. 
• Loans with some weakness but offsetting features of other support are readily available. Loans that are meeting the terms of repayment, but which may be susceptible to deterioration if adverse factors are encountered. 
• Loans may be graded Acceptable when there is no recent information on which to base a current risk evaluation and the following conditions apply:
  • At inception, the loan was properly underwritten, did not possess an unwarranted level of credit risk, and the loan met the above criteria for a risk grade of Exceptional, Above Average, or Acceptable.
  •  At inception, the loan was secured with collateral possessing a loan value adequate to protect the Bank from loss. 
  • The loan has exhibited two or more years of satisfactory repayment with a reasonable reduction of the principal balance.
  • During the period that the loan has been outstanding, there has been no evidence of any credit weakness. Some examples of weakness include slow payment, lack of cooperation by the client, breach of loan covenants. 
  • The client is not in an industry known to be experiencing problems.

Risk Rating #4 - Watch List

Loans in this category are considered to be of acceptable credit quality, but contain greater credit risk than 3 - Acceptable rated loans due to balance sheet, earnings, or cash flow stress (but with mitigating factors), or other uncertainties. These loans warrant a higher than average level of monitoring to ensure that weaknesses do not advance. The level of risk in a Watch List loan is within an acceptable margin of underwriting guidelines and is given the proper level of management supervision. Loans are in this category not because they are problem credits (for example: not criticized), but because they pose a moderate risk and the bank needs to follow their performance more closely than other credits. 

In addition to the preceding, the following risk rating attributes may be present:

• Financial and collateral documentation may not be current, complete or adequate; deficiencies and exceptions are correctable in a timely manner. 
• Client’s banking relationship is weakening and information is not being provided in a timely manner. 
• The client’s ability to repay from the primary (intended) repayment source is adequate with continued performance as contracted expected, but may be showing signs of possible future stress.
• The loan is currently performing as contracted, secondary repayment sources are sufficient to protect against the risk of loss, and it is reasonable to expect that the circumstances causing the repayment capacity to be uncertain will be resolved within the near future. 
• Access to alternate financing sources exists but may be limited to institutions specializing in higher risk financing. 
• Market is trending downward slightly and competition is becoming a factor. Trends are expected to turn positive again. 
• Financial ratios may be below peer averages; adverse industry trends may exist and capacity to repay may be below policy threshold but there is sufficient cash flow to meet debt requirements and/or other clearly documented mitigating factors.
• Guarantor may have marginal cash flows and liquid assets, but other assets are marketable and repayment is highly probable. 

Requirement for Upgrade: Improvement in financial trends or weaknesses that were cited as original reasons for criticism and would qualify for a better rating under policy thresholds. 

Risk Rating #5 - Special Mention

A special mention extension of credit is defined as having potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the credit or the institution’s credit position. Special mention credits are not considered as part of the classified extensions of credit category and do not expose an institution to sufficient risk to warrant classification. The following risk attributes generally may be present: 

• Financial and collateral documentation may not be current, complete or adequate; deficiencies and exceptions are correctable, but uncertain. Client’s banking relationship is weakening and information is not being provided in a timely manner. 
• Management is experiencing material problems and the company is showing signs of weakness with respect to financial controls or credit history. Management experience with an adverse environment is uncertain.
• Market is trending downward and competition is becoming a factor. Trends are expected to turn positive again, but outlook is uncertain. 
• Financial ratios may be below peer averages; adverse industry trends may exist and capacity to repay is below that required by the bank’s policy. There is sufficient cash flow to meet debt requirements but not with the level required at initial underwriting, however it is breakeven (1.0x) or better (and is expected to remain so) with mitigating factors noted. 
• Valuations are reasonably estimable. The market for the collateral may be deteriorating and a non-policy loan to value may be present, but it is mitigated by certain clearly documented factors. 
• Guarantor may have marginal global cash flows, liquid assets, but other assets are marketable and liabilities are manageable. 

Requirement for Upgrade: Improvement in financial trends or weaknesses that were cited as original reasons for criticism and would qualify for a better rating under policy thresholds.

Risk Rating #6 - Performing Substandard

A substandard extension of credit is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Extensions of credit so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected. Under the performing substandard designation, the client continues to perform as agreed on the bank’s debt despite noted weaknesses and the risk of default is not felt to be probable based on documented factors. The following risk rating attributes may be present:

• Financial and collateral documentation may not be current, complete or adequate. The deficiencies would appear to be correctable with the cooperation of the client. 
• Client’s credibility may be deteriorating and principals may be showing signs of atypical behavior. Client generally continues to maintain an acceptable banking relationship, with only minor weaknesses evidenced in deposit accounts. Information is not being provided timely.
• Management is showing signs of weakness and uncertainty and deficiencies exist with respect to financial controls. 
• Market is trending downward and is in an adverse cycle. There appears to be an opportunity for a recovery, but excessive competition is creating problems. 
• Financial ratios are below peer averages and debt coverage ratios may be calculated to be below breakeven (1.0x), however repayment is reasonably expected and sources of repayment are documented. Trends are still uncertain, negative cash flow may be a temporary condition, and guarantor willingness and capacity are well documented. 
• Client is out of compliance with covenants. 
• Payments are being made without significant delay and the source of future payment is felt to be reliable and documented. 
• Market for the collateral may be deteriorating and limited and based on current valuations, the loan to value may not be policy compliant. These criteria would not be the sole basis for classification and other weaknesses should be readily apparent.
• Guarantor has limited cash flow and asset values are questionable. Contingent liabilities may impact the guarantor’s ability to support the bank’s debt; however mitigating factors are present to preclude a worse risk rating designation. 

Requirement for Upgrade: Improvement in financial trends and weaknesses that were originally cited as the reason for criticism. This would necessitate cash flow generated sufficient to produce a better than breakeven (1.0x) overall debt coverage ratio, continued timely payment, and would qualify for a better risk rating designation under policy thresholds. The outlook for future trends should be positive in direction with the expectation of continued improvement in fundamentals noted. 

Risk Rating #7- Substandard

A substandard extension of credit is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Extensions of credit so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected. These troubled credits require constant supervision and are generally characterized by one or a combination of the following weaknesses: 

• Credit and collateral documentation is not current and is incomplete.
• Client’s management lacks credibility; requested information is no longer provided in a timely manner; promises are being broken. 
• Derogatory information exists regarding internal conflicts, financial controls, and timely payment of commitments as they come due. Management has no strategic plans for improvement of financial condition. 
• Market is trending down and evidence of business failures exists. Competition is extreme and the market is not seen as improving in the near term. 
• Financial ratios compare unfavorably to the industry; financial statements reflect poor earnings and excessive debt; it is unlikely that refinance is an option and without improvement, default is considered reasonably possible.
• Current valuations are typically needed to prove that valuations are adequate to protect loan balances and to determine a proper work out strategy. 
• Guarantor is illiquid and must rely on the sale of personal assets to provide support. However, amount of contingent liabilities may preclude adequate support from guarantor.
• The primary source of repayment is gone, and the Bank is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees. 
• Loans have a distinct possibility that the Bank will sustain some loss if deficiencies are not corrected.
• Unusual courses of action are needed to maintain a high probability of repayment. 
• The Bank is forced into a subordinated or unsecured position due to flaws in documentation. 
• The Bank is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan. 

Requirement for Upgrade: Improvement in financial trends and weaknesses that were originally cited as the reason for criticism. This would necessitate cash flow generated sufficient to produce at least a breakeven (1.0x) overall debt coverage ratio and would qualify for a better rating under policy thresholds.

Risk Rating #8 - Doubtful

An extension of credit classified as doubtful has all the weaknesses inherent in one classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. If the following criteria are met, a doubtful classification will likely result:

• Possibility of obtaining necessary financial or other information is unlikely. 
• Client is uncooperative; improvement is unlikely; no confidence in management team. 
• Adverse trends in the company have become more pronounced. 
• Market downturn is severe and rapid as compared to historical experience; recovery is difficult to determine, and the company’s ability to compete is questionable.
• Repayment in full is highly questionable and improbable. Concentrated monitoring efforts are required. 
• Collateral is intangible, specialized, or in unsatisfactory condition. Valuations are not current and are difficult to assess.
• Guarantor’s assets and earning capacity are inadequate and preclude support of the loan

Requirement for Upgrade: In order to qualify for an upgrade, improved risk characteristics must be noted that evidence a better risk rating in accordance with policy thresholds. 

Risk Rating #9 - Loss