We will establish high quality, profitable relationships and provide excellent service to clients in our geographic markets. Our emphasis is on establishing relationships with our clients and gaining as large a share of their business as possible, as opposed to transactional banking. We will have the discipline to operate within our lending policy guidelines, and not compromise lending standards as a means of achieving a market share goal. Capital City Bank’s priorities in order of importance are:

1. Maintaining Asset Quality
2. Developing Profitable Relationships
3. Growing the Portfolio 

It is understood that some balance should always be maintained between these priorities. As such, underwriting guidelines may be changed from time to time in consideration of economic conditions, portfolio mix, and overall portfolio quality by product type. Remember, however, the quality of the loan portfolio is always our overriding policy objective.

Capital City Bank (CCB) is a full-service banking institution, organized and operated for the purpose of serving the banking needs of individuals, businesses, organizations, institutions, and governmental entities in the Bank’s primary and secondary trade areas where it is considered feasible and profitable. Additionally, the Bank must ensure that its clients are consistently treated fairly and that uniform, sound credit practices are being followed. 

The objectives of Capital City Bank's lending function should focus on the following: 

1. To earn a high level of community respect for the Bank and its lenders.
2. To assist our clients by providing funding, in a safe and profitable manner, for expansion of their business activities. 
3. To expand relationships with current clients by focusing on sales and service delivery and improvements of product offerings. 
4. To increase profitability through careful allocation of resources, effective cost management, responsible pricing, and sound credit underwriting.
5. To maintain quality service through continuous improvements to systems and operating processes and by creating efficiency and effectiveness in satisfying customer needs. 
6. To maximize shareholders' wealth by producing consistent and predictable earnings and credit quality over the business cycle.

It is important that we have the trust, respect, and confidence of our clients. To promote that trust all information regarding the personal, business, and financial affairs of clients will be kept strictly confidential. 

All associates must see to it that records and information are safeguarded and they must understand that unauthorized access or use is prohibited. 

Conflicts of interest between officers, associates, directors, their related interests, clients, and the Bank will be avoided to ensure the highest degree of honesty, integrity, and objectivity is maintained in the lending process. 

Soliciting or accepting tangible property or services or anything of value as a gift or condition to a transaction is prohibited. Benefits of nominal value that are unconnected to a loan transaction may be permitted, but only in accordance with applicable laws and rules. Purchases and sales of any Bank products or services directly or indirectly involving an officer, associate, director, or their related interests, will be made on the same terms as for other disinterested parties, will be fully disclosed, and will be approved in advance.

Lenders are not to make loans to or manage relationships of clients with whom the lender engages in outside business ventures. In such cases, the client is to be referred to another relationship manager.

Loans to insiders are strictly defined in Federal and State statues and require close supervision because of the serious consequences for non-adherence including possible imposition of civil penalties. Federal and State statutes provide the basis for defining “insider loans” and specify explicit requirements and limitations that are herein incorporated into this policy.

Insiders as defined by Regulation O include executive officers, directors, principal shareholders, and their related interests. Executive officers are those who participate in major policy-making functions of the Bank. Principal shareholders are defined as an individual or company that directly owns, controls, or has the power to vote 10% or more of Capital City Bank Group stock. Directors are those of Capital City Bank (CCB) or Capital City Bank Group (CCBG). Community Advisory Board members are not considered to be insiders. Finally, related interest is determined by direct or indirect control. This control includes the power to vote 25% or more of any voting class of security, control over the election of a majority of the Board of Directors or the power to exercise controlling influence over the management of policies of the related company. Principal shareholders and executive officers are specifically named in the Bank’s Regulation O policy.

Extensions of credit to insiders are to be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with persons who are not insiders. Insider loans must not involve more than the normal risk of nonpayment or present other unfavorable risks.

Other general guidelines concerning insiders include:

1. Prior Board approval is required on all extensions of credit which when aggregated exceeds $25,000. An extension of credit includes:

• Making a loan
• Renewing a loan
• Granting a line of credit
• Paying overdrafts.

2. Total loans extended to executive officers of CCB cannot exceed the sum of $100,000. Exceptions include loans to finance the education of the officer’s children or to finance his or her primary personal residence if the loan is secured by a first lien on the home. The proceeds of the loan must be used to purchase, repair, or refinance the property. Those loans excluded in the calculation of the Bank’s legal lending limit are also excluded in the $100K limitation to executive officers.

3. Detailed current financial statements will support loans to insiders.

4. All loans to executive officers will have a demand feature (except where prohibited by law – for instance: closed-end loans secured by residential, owner-occupied dwelling and extended as a consumer purpose loan).

5. Overdrafts to insiders may be paid by the Bank only if a written, pre-authorized, interest-bearing extension of a credit plan, with a specific method of repayment, is established; a written, pre-authorized transfer of funds from another account at the Bank with sufficient funds to cover the overdraft is in place; or the overdrafts are less than $1,000 in aggregate and are paid in five business days or less. Normal service fees must be charged.

If there are any specific questions with respect to extensions of credit to insiders, refer to the Compliance Department.

The Bank has an established policy of making sound loans to all qualified applicants regardless of race, color, national origin, religion, sex, marital status, age, receipt of public assistance, handicap, familial status, or the borrower’s good-faith exercise of rights under the Consumer Credit Protection Act. All management officials are expected to implement this policy by dissemination to all loan officers and to any other individuals who might be able to receive loan applications. All loan application forms and procedures must be reviewed at least semi-annually to ensure that this policy of equal opportunity in lending is being carried out and that no loan applicant shall suffer any form of discrimination. Everyone has the right to file a written application and will receive notice of approval/disapproval within 30 days of the lender receiving a completed application.

The Bank is owned by its shareholders, which elect the Board of Directors to oversee its interests. The Board has many responsibilities including ensuring that appropriate plans and policies are adopted and adhered to, and that operations are effectively monitored. Additionally, the Board is charged with analyzing and determining that the credit needs of the community the Bank serves are met.

The Board is accountable for the Bank’s credit policies. It reviews the policies annually and reviews reports on the Bank’s loan performance at each meeting. The Board has designated the Chief Credit Officer as having responsibility to administer the credit policies. Administering the policies includes editing the policies and procedures and monitoring compliance thereof.

The loan policy is a dynamic document that is to be constantly reviewed. As such, there will be times when the policy needs to be reviewed to assure that it continues to harmonize with the Bank’s Mission Statement, Lending Philosophy, and long-range plans and strategies. As a lender you should recommend changes as you feel the need. The changes will be reviewed and implemented when appropriate. 

Note: All changes to policy will be distributed through the Credit Administration Department. No changes are to be made other than those published by Credit Administration.

Lending authorities provide a range of parameters based on the ability, attitudes, experience, markets, and character of loan officers to originate, monitor and collect loans efficiently. All these attributes are considered in assigning individual lending authorities, as well as the lender’s responsibility.

Each lender in Capital City Bank has been assigned a lending authority. All lenders within the Capital City Bank system are notified individually of their assigned loan limits. Credit Administration keeps a comprehensive list of each lender’s loan limit. Each lender’s lending authority is confidential and is not to be shared with anyone.

Without a doubt, it is in the lender’s best interest, as well as the Bank’s, that each lender preserve the integrity of his or her initials at all times. Never forget that you as a lender are responsible for loans you either originate or submit for approval.

Note that despite what your individual lending limit may be, no loans are to be made to a borrower identified on the Problem Loan Report without the approval of Credit Administration. Additionally, a lender’s authority to approve overdrafts is the same as the lender’s assigned unsecured lending limit.

The lender’s personal lending authority can be extended by the lesser of 5% or $10,000 to cover loan fees and closing cost at time of funding. Loan to value will include the loan fees and closing cost and must continue to stay within approved Bank guidelines.

Extensions, modifications, and renewals are granting of credit and require appropriated lending authority. For commercial loans, a one-time extension for up to three months can be made if the purpose is to gather required documentation or financial information. However, all extensions and renewals require authorization from the associate or committee with appropriate lending authority. All renewal notes must be prepared in Loan Doc Prep and must be supported with appropriate lending authority. Use of the “Modification Agreement” or “Extension Agreement” is not appropriate for renewing loans.

Lending authority is established within the following categories, based on the nature of the collateral:

1. Cash/Equivalents
   1. These are cash and similar depository accounts with the Bank, marketable securities (for example: publicly traded investment accounts), and similar instruments or accounts, both with the Bank or with other financial institutions when the proper lien is perfected.
2. Real Estate
   1. Includes all types of real estate collateral as defined by policy as being desirable loan types.
3. Other
   1. This represents all other collateral types, such as equipment, automobiles, and related when secured specifically by title, serial number, and similar.
   2. Monitored Asset Based Loans and Working Capital Finance facilities fit in this category.
   3. Does not include blanket liens and unmonitored lines of credit.
4. Unsecured and Blanket Liens
   1. Blanket liens, for purposes of lending authority, are those liens taken by Uniform Commercial Code (UCC) or similar that are not monitored and are not asset specific.
   2. To be asset specific, a UCC would need to be purchase money or similar with the UCC/lien noting a serial number and being a priority instrument.

The Credit Administration Department has no authority to originate a loan of any size. Its role in the loan approval process is to sign off on those loans submitted by lenders above their individual limits. 

Credit Administration has the authority to approve loans submitted by lenders up to the following limits:

The limits above are based on aggregate debt within collateral type. Any loans above this level within collateral type must be submitted to the Capital City Bank Credit committee. The Credit Committee will approve the lending authority for Credit Administration.  

In cases where a client may be requesting a loan that is, by itself, not material to the overall exposure, but is technically above the approving credit administration officer's lending authority, the officer may approve the loan and later report the approval to the Credit Committee. One example could be when a business client is financing a vehicle purchase or similar smaller transactions that might be over a category limitation. This provision is allowed for expediency and in recognition of the immaterial impact on credit risk overall. 

The Bank’s Credit Committee consists of the President, the Chief Credit Officer, the Chief Operating Officer, and the Chief Lending Officer. At times, other voting members may be added to provide for robust review and rotation of experience for senior managers. The Credit Administrator serves as the committee’s secretary. Additions to the Credit Committee are approved by the Board of Directors via their review and approval of this policy document. 

The Credit Committee is responsible for considering loan proposals above the Credit Administration sign off authority and up to the Bank's in-house loan limit. Additionally, it is responsible for reviewing loans that have been approved by Credit Administration above the following limits: 

Credit Committee approval requires a quorum of the members. A quorum shall be deemed to be at least 2 members, if 1 is either the Chief Credit Officer or the President. The expectation is that the Committee is to come to a consensus decision. In the event of a tie vote, the Credit Committee Chair (Chief Credit Officer) will cast the deciding vote. In the absence of the Chair, the President will cast the deciding vote.

The Credit Risk Oversight Committee may review the Problem Loan Report, past due loans, and a quarterly review of the Allowance for Credit Losses. Concentrations, loan portfolio trends, and other specialized reports are discussed in the committee forum.

The Chief Executive Officer of the Bank and the President of Capital City Bank have the authority to obligate the Bank up to its legal lending limit. All loans that are over the in-house limit must be approved by Credit Committee but require additional approval of the Chief Executive Officer and the President of the Bank.

The Bank seeks to obtain the highest quality financial statements possible for each loan request. The table below summarizes the level of financial statement quality desired:

At times Credit Administration/Credit Committee may require a higher quality level using a risk-based approach. 

These instances may include but are not limited to: 

• High levels of unsecured debt
• Non-recourse loans
• Monitored asset backed lending relationships
• Other complex credits

When the desired quality of financial information is not obtained, the account officer's memo must include mitigating factors to support the waiver of the higher desired statement quality level. Credit Administration/Credit Committee may evaluate the mitigating factors and determine if the presented financial information is acceptable. 

Our lenders are expected to develop new business by making sales calls on prospects. While making loans to new contacts or making new loans to current clients, it is the responsibility of the lender to fully understand the risk attributes associated with the loan. Additionally, the lender needs to fully comprehend the purpose of the loan and the circumstances that have created the need to borrow.

The risk attributes and the borrowing cause are typically gathered from 2 primary sources:

• Management 
• The company’s financial statements.

It is up to the lender to gather information about the business including its management’s experience and background, its competitors and strategic advantages, and its industry in general. It is also helpful to know what outside influences may exist that impact the company’s success and are beyond the control of management.

The lender must also obtain and review the necessary financial information. Objective and reliable financial statements are a prerequisite for making commercial loan decisions. The lender determines whether the loan is feasible and fits within our policy using the financial statements in an initial and cursory credit analysis.

For commercial loan requests, the Credit Administration Department should normally be provided with at least 2 years of fiscal year-end financial information on the business entity. The corporate financial statements are to consist of both the balance sheet and profit and loss statements. Additionally, at least two years of personal tax returns are required on all owners holding a 25% or more interest in the company because they will be required to personally sign the loans to all closely held businesses. 

Personal financial statements are also to be submitted dated within 6 months of the application on a new borrower. The personal statement needs to be signed, dated, and certified to Capital City Bank or submitted on the Bank’s financial statement form. When documents are received electronically, evidence of receipt from the client (or client’s CPA) or other notation of the client authorization may suffice. The personal information is likewise required on guarantors, when required. Certain exceptions may be made for small business clients – refer to the Small Business Lending Policy and underwriting procedural guidance.

If the loan is complex and significant interaction with Credit Administration is required, it is recommended that a member of Credit Administration accompany the lender on subsequent calls. It is always easier to have assistance from a credit administrator if for no other reason than to eliminate a second channel of communication requiring interpretation. Also, the more involved a credit administrator gets early in the process, the easier it is to provide a timely response to the client, which is a competitive requirement.

As soon as the decision has been made to proceed, the lender uploads the financial statements to Abrigo and launches a request including supporting narrative addressing the various risk attributes. Consistency of presentation is required. The lender should address the loan purpose analysis, business review, management review, collateral analysis, and other pertinent issues. Keeping open communications with your credit administrator during the process is helpful.

Loan officers and support associates are expected to follow the Bank’s established procedures for the Client Identification Program (CIP) and, for business loans, all required beneficial ownership information. 

One of the Credit Administration Department’s functions is to support the needs of the lenders throughout the process. This is accomplished by providing timely financial statement analysis and feedback to questions and timely responses to loan requests when its sign-off is necessary.

The Credit Administration Department is responsible for initially spreading and analyzing financial statements. Any concerns or questions regarding the financial statements should be immediately posed to the lender or client when appropriate. Any direct contact with the client or its professional team is cleared first through the lender. If necessary, the credit administrator should conduct economic and industry research to provide a better understanding of the environment in which the client operates.

Once all the financial analysis has been performed, the credit administrator is to write the financial narrative to accompany the lender’s non-financial analysis. The credit administrator details the strengths and weaknesses of the credit, the proposed loan covenants, if any, policy exceptions, if any, and justification therefore, and a recommendation for approval or denial. The credit administrator will communicate his or her analysis to the lender if time permits prior to presentation of the loan to credit committee when required. Credit Administration communicates the final loan decision to the lender. There will be times that the lender and/or their supervisor will not agree with the Credit Administrator on a loan request. In these situations, when the unit executive and the Credit Administrator cannot reach concurrence, the originating lender may submit and present the loan to Credit Committee for a final decision.

Responsiveness is a major component of the service Credit Administration provides to loan officers. The following is the order of priority for loan requests:

1. New money requiring committee approval
2. New money not requiring committee approval 
3. Renewals requiring committee approval
4. Renewals not requiring committee approval 
5. Statement spreads within a lender's limits 

Turnaround times for a various requests have been established and are determined by the complexity and size of the loan request. 

There are situations where it is beneficial to confer with other lending associates who have specialized industry knowledge. These conferences include discussions with specialists in commercial real estate, large corporate finance, and institutional business. Additionally, there is industry-specific expertise relative to certain agri-business within the Bank.

Because of our desire to add value to the banker/client relationship, an associate receiving a request meeting the following criteria is to contact the appropriate banking department or partner.

• Commercial Mortgage - Residential and commercial acquisition and development loans greater than $500k. All hotel/motels, strip centers, ACLF's, and non-owner-occupied office building greater than $750k.

Corporate - All types of commercial and industrial loans as well as owner-occupied commercial real estate loans greater than $1.0 million. All asset backed lending requiring monitoring and borrowing base certificates

Institutional - State and local government loans of any size, non-profit loans greater than $500K, and other correspondent banking needs subject to formal proposals.

Agri-business - Contact Credit Administration for all agricultural related loans greater than $500K for a reference to the appropriate banking partner.

It is imperative that initial contacts be made timely and early in the loan process. It is even more important that responses from the partnering department be handled with a sense of urgency. The involvement of the banking partner will depend on the complexity of the credit and the experience of the primary banker. It may range from a single phone conversation to having partners meet with the client and actively participate through post-closing.

To maintain our internal control environment and to ensure all standard terms and conditions are included, Loan Document Preparation (Loan Doc Prep) is to be utilized for loan packages. Attorney prepared documents should be reserved only for loans that are extremely detailed, comples, or have terms that cannot be handled by LaserPro.

To have the loan documented, the lender must fulfill requirements in the appropriate loan application system and related checklist including compliance and underwriting requirements. Loan Doc Prep then prepares the appropriate documents for closing. As the documents are prepared, they are checked against the conditions of the loan approval, the loan worksheet, and the documentation checklist.

For those loans originated using the DecisionPro (DPro) and Abrigo loan systems, the approval documentation and other requirements will be largely met by completing the application flow in the system itself, in conjunction with completion of required items on the appropriate loan checklist or workflow.

The Bank takes loan documentation exceptions seriously and expects each lender to do the same. Any exceptions to the requirements of the documentation checklists regarding items that may result in loss are recorded as exceptions and reported. Copies of this report are given to lenders and the Credit Administrator. Each officer is asked to clear exceptions on this report as quickly as possible. While Loan Doc Prep prepares and reviews loan packages for completeness and correctness, the loan officer has the ultimate responsibility for the loan documents and should review them in detail before closing.

The following loans are categories normally considered to be desirable loans:

• Short-term working capital loans to established businesses located within the Bank's market area. 
• Loans to business to purchase equipment.
• Loans secured by readily marketable stocks or bonds with adequate margins to allow for market fluctuations.
• Loans secured by the cash value of life insurance in an amount equal to or greater than the loan.
• Loans secured by the assignment of savings accounts and other time deposits from government-insured banks and savings institutions.
• Loans to individuals to purchase durable goods.
• Loans to purchase owner occupied mobile homes.
• Real estate loans secured by first mortgages (or second mortgages when sufficient equity exists) on improved business or residential properties.
• Construction loans with a permanent take-out or when the borrower has been pre-qualified for permanent financing.
• Speculative residential construction loans to builders of financial stability and integrity.
• Loans to develop raw land for construction purposes to experienced developers with adequate financial resources.
• Home improvement loans secured by the primary or secondary residence of the borrower.
• Loans to farmers for operating capital when the term does not exceed the growing season.
• Loans to farmers to purchase equipment or real estate.

The following are considered undesirable loans:

• Loans to parties whose integrity is questionable.
• Loans for the purpose of enabling the borrower to speculate on futures in the commodities markets or on the stock market.
• Loans secured by U. S. Savings bonds.
• Loans secured by bonds with a rating below “B” or bonds of foreign entities.
• Loans secured by household goods such as jewelry, art, or guns.
• Loans for capital to establish a new business when repayment is predicated on the success of the new business without adequate secondary sources of repayment.
• Loans to individuals with unsatisfactory credit history.
• Loans secured by stock in closely held companies or by not readily marketable or restricted stock unless there is a verifiable independent source of value or buyback agreement from a qualified and capable party.
• Loans to insiders unless allowed by Regulation O.
• Out-of-area loans as defined in this policy.
• Non-amortizing loans for non-current assets.
• Loans to provide debt service for credit extended by another financial institution.
• Any loan in violation of any banking law or that is a discriminatory practice

Florida banking statutes prohibit the subsidiary bank of a one-bank holding company from making loans secured by the stock of the holding company. Therefore, we are strictly prohibited from making new loans secured by CCBG stock.

Only trusts that are documented by a written trust agreement are acceptable as borrowers or guarantors. Prior to lending to a trust or accepting a trust as a guarantor, an original executed copy of the trust agreement and all related documents are to be obtained. The trust agreement is to specifically grant the trustee the legal authority to borrow, guarantee, or pledge trust assets for loans to the trust or to other entities. These agreements are to be reviewed and approved by the Bank’s attorney at the cost to the client.

The Bank makes loans under various government guarantee programs. To qualify for government loan guarantees, loan applicants are to substantially meet the Bank’s accepted or standard credit criteria as well as the government’s program eligibility criteria. These programs allow the Bank to make extended terms and provide a secondary source of repayment. Government guarantees, however, are not to be used in substitution of the bank’s credit underwriting criteria.

Unsecured lending is appropriate only when a borrower’s capital, liquidity, historical operating performance, and management team indicate such an extension of credit is proper. These loans, particularly for business purposes, are to be reserved for the Bank’s strongest and most credit-worthy clients.

The Bank, from time to time, may purchase loans from other financial institutions. Before purchasing participations or loans in full, the Bank completes an independent analysis of the credit quality of the obligations to be bought. The credit analysis performed by the selling bank can be used for informational purposes, but it is not to be used as a substitute for the bank’s own independent analysis. Copies of loan documents are to be obtained and reviewed for adequacy. An analysis of the value and lien status of the collateral is to be performed with particular emphasis on appraisal dates and by whom it was performed. Underwriting and approval of these loans will be conducted in the same manner as direct lending (for example: same level of diligence as if the Bank were originating the loan directly). Additionally, these loans will be subject to the same ongoing monitoring and annual review requirements as with all loans held by the Bank.

Loans purchased or participated in markets or industries outside of the Bank’s current footprint and normal lending profile will be subject to additional due diligence requirements, including market analysis, industry risk analysis, and other enhanced underwriting as warranted. When purchasing participation interests, a review of the originating bank will also be undertaken to assess both their financial standing and their adequacy to appropriately manage the loan relationship itself (for example: suitable control environment and experience as pertains to the loan type and industry).

Concentration limits for purchased/participation loans will be two-fold: 

1. All purchased loans and participations will be included in the Bank’s existing concentration limits as noted elsewhere in this policy.
2. As a group, commercial 50% of Tier 1 capital.

Participation agreements between the Bank and the selling bank are to require the selling bank to continually provide complete and current financial information to the purchasing bank, as well as insure prompt distribution of payments and notification of events of default. Factors to be considered before purchasing a loan, considering the credit quality is acceptable, include:

• Pricing
• Maturity
• Recourse
• The purchaser’s rights during the life of the loan
• Responsibilities of the servicing institution

There will be times when the Bank desires to participate a loan to other financial institutions to reduce exposure. All participations are sold without recourse. Participations are also sold on a pro rata basis. 

It is against Bank policy to sell participations to other banks on a last-in, first-out basis. Should this be necessary, it must be documented as an exception to policy and approved by the Bank’s credit committee.

The terms and conditions of all loan participations sold to a third party must meet the required definition in FASB Topic 860, Transfers and Servicing, for a “participating interest”. Certain specific criteria (see below) must be met in order for the loan participation to qualify for sales accounting and removed from the Bank’s balance sheet. When loan participations are being considered in the underwriting of a loan, the terms and conditions of the loan sale being considered must be pre-approved by Credit Administration prior to commitment to the third party purchaser of a participating interest. The Bank should prepare the Participation Agreement when it is the originating lender and include these terms and conditions.

ASC 860 criteria for obtaining full sales accounting treatment include:

• From the date of sale, the proportionate ownership for loan participants does not change.
• Cash flows received by loan are allocated according to proportionate ownership percentages of participants (presence of LIFO/FIFO terms prohibit sales treatment and removal of participation from CCB balance sheet).
• The rights of each participating interest holder have the same priority, and no participating interest holder’s interest is subordinated to another participant.
• Participating interest holders have no recourse to the transfer or to another.
• No participant has the right to pledge or exchange the loan unless all participating interest holders agree to pledge.

The Bank may engage in tax equity finance transactions. Such transactions will be limited to 5% of the Bank’s capital and surplus and the total tax equity investments will not exceed 15% of capital and surplus. These investments will be the functional equivalent of loans and be made under the Bank’s lending powers. Participation in either a transaction or a fund investment in multiple transactions will require prior Credit Committee approval. Each transaction will be underwritten/evaluated to ensure expected cash flows, including tax credits, tax savings due to depreciation related to the investment activity and cash flow from operations are sufficient to repay the investment.

Each loan made by business bankers should have the Bank’s standard Abrigo workflow completed, along with a loan memorandum to document the request and decision when applicable. This requirement includes those loans that are within a lender’s lending authority. On those requests that are above the lenders lending authority, a complete loan memorandum with financial statement analysis will be provided for the loan decision.

This includes statements on the borrower, guarantors, and co-makers. For credit file purposes only, ongoing financial information will not be required if the outstanding relationship debt is < $750K or comprised of only consumer loan types (for example: home loans, HELOC) that are not business loans. Otherwise, ongoing financials will be required for all new or renewal requests as well as annual reaffirmation of demand loans or other items subject to annual review as noted in following sections.

Tax returns, both personal and corporate, provide valuable information on a borrower’s financial condition. Tax returns should accompany the corporate and personal statements on all borrowers. Additionally, when there are significant S Corporations reflected in a personal tax return, tax returns should be received on those businesses to obtain a better understanding of the individual’s overall cash flow.

There may be times when a particular partner in a project provides no real financial strength to the deal, rather technical expertise that warrants his inclusion. When this is the case, the lender may waive the financial statement requirement. They must provide and document the reasons they believe the statements are not necessary.

Our lines of credit and other loans are frequently approved with limitations on the amount we will fund against accounts or against inventory. The files in Synergy and Abrigo will house the borrowing base certificates evidencing compliance with advance rates when required. Also, other information that is periodically required, such as interim financial statements, rent rolls, floor plans, or aging of accounts receivable will be kept in the credit file (either within Abrigo, Synergy, or the Credit Administration shared server).

Significant communications with the client should be documented with a memo to the credit file. These communications may include a change in business strategies, expansion plans, problems being faced in competition, other banking needs, or any other items. The lender should document each visit to the client’s place of business and include a record of the conversation or activity that took place and with whom.

Action plans are required quarterly to describe the current condition of all commercial loans/relationships $250,000 and above specifically identified on the Problem Loan Report (for example: rated as Special Mention or worse). The most current action plan should always be in Abrigo.

For those loans/relationships $250,000 and above and already identified as problem credits, the lender will prepare an action plan quarterly. This document is to briefly schedule all criticized loans and summarize the collateral position on each. The reason for classification, as well as steps being taken to correct the problem, is to be discussed in detail. Action plans should be completed and forwarded to the Credit Administration Department and the division manager by the end of the month following the calendar quarter.

Watch list reports are required semi-annually on all such rated commercial credit relationships of $500,000 or more. The most current watch list report should be placed on file within Abrigo.

For those loans/relationships $500,000 and above and identified as watch list loans, the lender will write a watch list report semi-annually. This document is to briefly schedule all loans and summarize the reason for watch list designation and any key issues being monitored. Watch list reports should be completed and forwarded to the Credit Administration Department and the division manager by the end of the month following the semi-annual date point.

This is an annual review of the overall relationship including risk analysis, current loan classification, collateral review, and summary of strengths and weaknesses as documented within Abrigo.

Lenders are the best prepared of all to adequately monitor the performance of their individual loan portfolios. They communicate with the clients more than anyone else.

Relationship Managers (aka lenders) are to upload current financial information to the Abrigo credit file. The lender may elect to undertake (or request from Credit Administration) an updated analysis with any trends or concerns noted as well as a thorough collateral review.

The essential elements to be provided by the Relationship Manager and included in the Annual Review Memorandum are as follows:

• Background/Company Profile – Note significant changes in operations or strategic plans of the customer going forward.
• Banking Relationship History – Include existing deposit and loan relationship schedules.
• Borrower Management Analysis – Note concerns or improvements in previous weaknesses.
• Industry Conditions – Economy, increased competition, regulations, new methods of conducting business, and any other influences.

The lender receives past due reports at least monthly and overdraft reports daily. Both reports are excellent indicators of potential problems that may affect a borrower’s performance. Another critical piece of information that the lender needs to obtain is current financial information on all business relationships with total debt exceeding $750K. Financial statements for business are considered current if received within nine months of the current fiscal year end. Personal statements are considered current if received within 12 months of the last statement on file. (Note: If borrower is requesting new money all statements must be not more than six months old.) Required tax returns should be received within three months after the first filing deadline. If returns have been extended, the extension filing must be in file to change the financial statement exception date.

The Credit Administration Department will provide the lenders with a financial statement exception report monthly. Additionally, the Credit Administration Department will produce client communications requesting financial information.

It is incumbent on the lender to informally review the financial information received on their clients prior to uploading the statements to Abrigo for filing in the credit files. If the statements indicate potential problems, the lender will follow up with a call on the client for more detailed discussion.

Any material change in the potential performance of a client is to be immediately reported to the lender’s supervisor and to the Credit Administration Department. Subsequently, the lender is encouraged to write a memo detailing the red flags and the potential problems faced by his or her clients. Newly classified or criticized loans should rarely be discovered by the Credit Administration Department alone.

To facilitate ongoing monitoring of the portfolio, certain information must be loaded in the core operating system at the time of closing. This includes the assigned risk rating, NAICS number, and other pertinent information.

For loans within a lenders’ authority, he or she should assign a risk rating in accordance with the Asset Classification Policy to the individual loan within Abrigo to be included in the booking information.

The Credit Administration Department is charged with performing many activities required to actively monitor the ongoing performance of the loan portfolio. These activities are dependent on accurate, reliable information being input and maintained through the Bank’s core system.

One of the most important monitoring activities is analyzing the Bank’s composition of risk ratings. Credit Administration is responsible for ensuring that the appropriate ratings have been assigned to loans. Analyzing ratings composition and shifts in that composition provides necessary information in revising loan policy, and strategic initiatives. It also enables the bank to predict future performance more accurately.

Risk ratings are also utilized in compiling the bank’s Problem Loan Report. The Credit Administration Department will distribute the Problem Loan Report, which features all criticized and classified assets, monthly to all lending personnel, senior management, and Credit Committee.

The department is responsible for monitoring compliance with specific loan covenants on applicable loans, along with the Working Capital Finance department and loan officers. The Working Capital Finance Department is charged with monitoring the receipt of borrowing base certificates that limit draws on available working capital lines of credit. Non-compliance with any covenants or over-advances on lines will be reported to the lender and the division head immediately for discussion of action.

Loans secured by marketable securities are desirable loans when properly margined. Each quarter the Credit Administration Department will compile a list of all loans secured by marketable securities and revalue those securities to ensure an acceptable collateral position.

Annual reviews of significant loan relationships are a vital way of monitoring the loan portfolio and anticipating its performance. Annually, the department, with the assistance of the relationship manager, will compile an Annual Review Memorandum of those relationships with aggregate debt of $2,000,000 and above for real estate secured loans and loans to municipalities, $1,000,000 and above for non-real estate secured loans and working capital finance facilities. In addition, annual reviews will be conducted on ACH exposure as noted in the ACH Policy, and on-demand loans of $250,000 or more. This memorandum will consist of a financial analysis on current fiscal yearend financial statements and appropriate tax returns as well as a general business overview and collateral review. The relationship manager will provide an overview of the existing relationship and any non-financial analysis of pertinent changes to the borrower’s relationship or business.