Applies to: * Business Banking + Small Business Lending (interim) + Not-For-Profts and institutions Excellent (1) "New and renewed fans based on quit cofateal wth adequate margn of supported by song faanca statements ‘uate wh an unquaied opmon om a Cerfied Puble Accouning fm, The chaaclt and repayment aby ofthe toowers are excelent and without queston. High quay. mnmum leverage. stong rats, and mnmal monvting “equrements ate common to these loans. Ths dassicaton wi also nce all ans Secied by Ceticates of Deposit {(CDs")or cash equivalents, margined in accordance wit bank pokey, In adtion. an Excelent ang may be assiged ‘a publely traded company that has a senior bt rating of AA or bette, SCR args — CONROE] PORE — Wp aR | ORTTET Comcage oo SR [RRSP wet [ERAT POSSI Tap ace Te Gargies AAR loans o erates Good (2) Desirable new and renewed loans of somewhat ess stature than Excellent, but wah song franca! statements comtarng ‘an unqualified opmion fiom a CPA fim Loans supported by u-audted fnancalsatements contaning song bafance sheets and five consecutive years of profs, combined with a fvesyear satsfactory relatonshp wih the Bark. Loans. secured by maigined marketable secunbes. where there 1s no concentration or imparment to hudaten and the ‘tobabaity of serous financial deteroraton is unlikely. Pessessing a sound primary source of repayment and a secondary source. wbich wil allow for repayment within a reasonable penod of time, Indvdva loans backed by bqud personal asses, established history. and unquestonable character May include unsecure fans to substaal ‘ublely owned oF pmately oaned businesses which forthe most part meet the requiements of Excelent (1) above and ‘ave considered to be well above average financial stength but may be major players in cychcal musines that have expenenced fucuang earings records. May also nude secured or unsecured Ioan to publicly traded companies of very trong fnanoal stength ‘BSCR Cavenge | Colatwal | Uquahy | Protanany [Mgmt] hunny — | Dany Sov Saat Exot STM — PST a yO Coty — | CRT ease ee — oe Rae natree Stomarecne. | bie came fencer peatonsSatistactory (3) Satslactoty oars of sighty beter than average visk, having some deficiency or wlneabity fo changing economic ondions. but sll uly cotectble, Prjectsboriowers clealy demonstrate beter ian breakeven det serace coverage ‘on a cunt basis. May exhibit some weaknesses. but wih offsetin features of other suppor reac avaiable. Loans ‘aL are meeting te terms of repayment bul may be susceptible to detenoraton i adverse factors are encountered Loans maybe ‘ated Satsfatyy when ine Saanca fomaton is cdr than two years andthe flawng condters sy. ‘+ Aincepton, the loan was properly underuten and id not possess an unaarrartes level of cet isk—aso the loan met ne above entena fora nskrabog of Excelent, Good, Satsfactory + Auction, loan wos seed mh cali osesng aban ovate adequate o ptt he Bark tom * The ke oct om ye sy apo 1 2 er tan te _plinapal balance or (2) performance within asset-based remittance and reporting requrements + Dung the penod tht he loan has been oustanding there has been no edence of any mateal crest weakness. Some examples of weakness nude ow payment. some ack of cooperation by the bore. ote buses sm an industry whch ss kn 0 be expenencng prclems. Many of these ciedt weaknesses are observed, a lowe isk ang warned, + May ls clude secute or unsecure! loans to pubic tades compares that have excepnaty song faanoal est [OSCR] Care —) CoRR Ceza | ORGRTRG Ro] BY —T Oran] CHa) DOETETAG uicot | wat tren) | came TiS [Raa STs Goat | Cats Cate Poereaty Years ates ae cee emotes ‘Acceptable (4) . eka mde eda anes can, than oc Sain nae 3k det tnanoal weakness oF uncertanty. Loans so ealegonzed need a hgh than aver fmanting Eiikinaeeantenseotaasets Da orcs mcapaybeualordea ahuriua Saulondey ‘repayment sources may be less secure Cred relatonships fang int this category may mncude tansibonal credits such as, "+ Stonger RE constuctenrenovaton oes for commercial bonowers with stong NWS aor guy, due to the inherent rsk of construction lending, most RE constructonitenovaon project ioans wil be rated 5, * Las tannses arte parca are en on bse ase vad onan Etpse ‘Value bass + Loans to corttactors nh ited experience wah the Bank under a Developer Line of Cred product ‘+ May also include secured or unsecured loans to publ traded compares that have very god franca stength,aR ge — ear Ta Teaunly —Untrgncy—] Covenant TO Pa] cowrge utoor | iat tmx) | Compience | Egat 7 a Eas =m 77d gic GaGa hada sea waree | Acette soe range rove | maybe faeena| tee sue Accoptable/Monitored (5) Loans. whien possess some ciedtdefizency or polenta weakness. which deserve cose atenlan but whuch do not yet _appeat 1 jeopardize repayment, The key distnctons of an AcceplableMontored cassiiaton ate thal the cect characlenstcs ae hose ofa 'f rated cred that performing nowally. but ere san uncertan level of sk de to such factors a8 (1) a tack of formason about the curtentconditon ofthe bertomer, angio’ (2) a documentation delet thal could ulumatey jeopardize repayment of he loan in hi Examples ot fated Boroels are business slaps and most RE consirconitenovaton projects ‘The level of risk in an AcceptabieMontored crede 15 considered once (Le 6 oF worse) and win normal tunderuning gudeines as long a te oan s gen the proper evel of management supervision Debt sevice coverage ‘may be weaker han for category 4 credits and Secondary repayment sources may less secute roman [ [omen [ooo [toners [earn sie dital besll SES SCLIN KGS Ld Special Mention (6) (Catrzed) Pes the FDIC. A Special Menton asset has potenbal weaknesses that deserve managements close atenton if et Luconected these potetal weaknesses may resut m detenoraic ofthe repayment prospect fr he eset othe 5 erect poston sme future cate. Spec! Menbon asses are ol adverse” cassfied ad Got expose On Insttuten to suficent eh fo wart aaverseclasatesion The Special Menton category isnot to be used as a means of avoxing a clear decison wo classy a Joan or pass witout citasm. Nemer should ncude loans ksled merely or ine recaid" when Unceraies and competes, perhaps coupled wih ie, create some reservaien about te foan Loans 10 new customers should not be approved wth ths loan rabng Grated ceais generay reflect these characenstes. ‘aap EORTC] RATT WG — URE] COTRREA covers ouioet_[wntiten | Eso [Enon TRE [VEFAG Pete SaaS TS TS TOT rae oe saera‘on” | won) unc days teget | ames‘Substandard (7) (Classified) Per the FDIC Substandard loans are madequatey protected by the cunent sound worth and paying capaciy of the ‘obigor or of te cateralpleaged, f any Loans $0 classed must Nave a well defined weokness or weaknesses that ‘se0gardze the iquidaton ofthe dett. They are characterzed bythe distinc possibilty that the bank wil susan some loss ‘ine defciences ave not corrected, (One or mare ofthe following characteristics may be exhibed in credits dassfied Substandard Possess a defined credt weakness and te ikelood that a loan wll be repaid fiom the pamary souce of repay ae uncerane’ nmi + Fanco!cterraon nde way and vy ose tenon swat Yo mnie petal and gobble tones + oars ate adequately tects bye cent twat and paying capt he tiga + Unusual courses of acton are needed to mamtamn a high probabiity of repayment. ‘+The borrower 1s not generating enough cash flow to repay loan principal {even if the in the ante the bomrower Corie tral ete ponents yeu on exona ba on cowarly ehgaed sources} + Thelenaet ice ato an made pede poston fg subucnated or ueecae poston eo as inaecumerotan + Gans nave nen ested 3 hat payment shew, tems, ad cota pest concessions tthe borrower when compared to the normal loan terms. + Intaon clea acon wich nul case he Danko be nadecuey potted bsed on the best yen of treba + Most ot a estate oer Rel stat One tts wl be casted 7-Substanda [OSCR] Civerage Ce [Prenat 7 aipne nds ‘Covenant coon Santa coo pg a = ome feet fact eter fom [oases [or Soe: =" |r. [Sore Beas et oo bs ‘oans to new customers wl not be approved wih this an ating. hen 2 ced s ated or worse he oan offear Should evaluat the oan’ accra tas. and prepare an impart Ass consent wth FAS 118 and bank poly. \imparmert est, te analyss should e forrarded to me Spec Assets Group as well as Finance & Account, and thelban shouldbe laced on non acral sasul (8) (Ci he ‘ens classed a Thave al Te weaknesses Maren Those Cassted Si ‘added characters tat the weaknesses make collecion or iquiation 1 lon tne Basis of known fats, conditions and valves. mghly questionable ana improbane poser—pe [Ea PST REY War eT —|DSETISITG) rrr [eee Non [wioat [tan mr] Constance [testa Loss (8) (Classified) Pex FDIC. Loans classified Loss are considered uncollechtie and of such lite value that continuing to cany them as {assets on the Bank's nancial statements 1s not warranted Ths cass‘eaton does not mean that he oa” has absolutely ‘no recovery or savage value. but lather 1s not practcal nor desrable to deter wolng OM ths basically worthiess asset. ‘even though partel recovery may be affected nthe future Sete areings, loan oss reserves. capil. and reputabon wih cut vegulators and auditors” Rabnge shoud be assigned and ‘mosiied based on objectivity. not ego. Every loan ofcet neds to know and propedy apply ask raungs in BOD Underwitng and cvedt management. 7 Risk tings shoul be fly justted each loan presentation meme, cetetencing the guidelines above forthe sang assigned 1+ ShoreBank’s 1s for moctying nsk eatings ‘+ Loan officers should revit ask rating and documeniicommunicate wih a cedt te momo, any RR. _change win 20-45 days of rect of adveise financial nformanon either om the bortower OF other ‘source. butin no event pasta calendar quarter end dat, + A doutie-downgrade of a nsk rating (1e. move than one notch) wana short tmettame, and absent no Rew matenal infomation. snot ndcatve of proper risk management and communication. Orscipinary ‘action may be taken in accordance with SBK’s Human Resoutces policies and procedures ‘+ Reasonable banking professiona’s may disagree onthe ference between, say a S-aled or 4ated ‘reat but ere shoul be Ile Gsagieement between a Pass’ credi and a Cried credLins eo args soins edt asin ete) ve ShoreBank's fist ine of defense when comes to ask ratng accuracy. Risk rabngs dictate out evel of earungs, ‘oan loss reserves. capital, and reputation with our regulators and auditors. Ratings should be assigned and ‘modified based on obyectity, not ego. Every loan office needs to know and propetly apply nsk ratings in both undenwaiing and credit management Risk ratngs shoud be fuly justfied mn each loan presentation memo, referenong the gudlines above for the tatng assigned Loan offers should evista ask atag and docuentcommunae witha cect fe mem. any RR ange win 3-45 days of reap of adverse fnanaal information eet to the boronet or thet tute, Duin no even past a calendar quates end dae + Adouble downgrade of ask abn mote ran one och) with a shor tmetrane, and absent no ew mate infomation. notindcabve of roper ask management and communcaten. Dscpnary ‘acon may be taken n accotcance wth SBK's Human Resouces poces and procedures. Reasonable banking poessonas may disagree onthe dilerence betwoen, say a 3ated x Aated teat bul here shoul be ile sagicement between a "Pass cred and a Crtczed cede