North Carolina Community Federal Credit Union Policy Number East Ash Street Goldsboro, NC Revised and Approved 06/22/04 Page 1 of 12

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1 Page 1 of BUSINESS LOAN POLICY I400.1 General. It is the policy of NORTH CAROLINA COMMUNITY FEDERAL CREDIT UNION (NCCFCU) to make loans that represent a desirable and profitable means of investing credit union funds. Each such loan is made to a business organization, and the natural person members who are principal(s) of the business organization are to provide their personal liability and guarantee of the loan. Such loans must also conform to the provisions of the National Credit Union Administration (NCUA) and to the written loan policies of NCCFCU Authorized NCCFCU officers are expected to make loans that afford profitable opportunities to the credit union, while adhering to prudent lending practices. When making business loans, primary consideration shall be given to existing or potential members within the Geographic Region noted under "Territory. If NCCFCU liquidity is not adequate, it will be the policy of NCCFCU to grant loans under a participation arrangement policy. Periodic disclosure will be made to the membership and will be published in the lobby of all branches of NCCFCU by posting the Statement of Financial Condition for each and every month end. NCCFCU will comply with the NCUA Rules and Regulations Section 723 and DFI Title 10, Chapter 1, Subchapter 30, Article 8, Section regarding Member Business Lending ( MBL ). NCCFCU also will comply with rules and regulations as set forth in the Small Business Administration s ( SBA ) standard operating procedures for SBA loans Business Loan Definition. "Business Loan", as defined by NCUA guidelines, means any loan, line of credit, or letter of credit that is used for a corporate, business or agricultural purpose The following loans will not be considered Business Loans: a. A loan fully secured by a lien on a 1 to 4 family dwelling that is the member s primary residence; b. A loan fully secured by shares in the credit union; c. Loan(s) to a member or an associate member which, when added together, are equal to less than $50,000; d. A loan where a federal or state agency (or its political subdivision) fully or partially insures repayment, or fully or partially guarantees repayment, or provides an advance commitment to purchase in full; or e. A loan granted by a corporate credit union to another credit union SBA Loan Definitions. Any Member Business Loan guaranteed in part by the United States Small Business Administration. a. Loan guarantee: the percentage of the total loan amount, or the specific dollar amount that is reimbursed by the SBA in the event the loan becomes uncollectible. b. Non-guaranteed portion: The portion of the SBA loan not backed by a loan guarantee and subject to the NCCFCU Business Lending Policy. c. Secondary Market: Any third party whose business is purchasing in whole or in part a NCCFCU SBA loan. d. Colson Services: The exclusive reporting and secondary market servicing agent for the SBA.

2 Page 2 of Territory It is the intention of NCCFCU to service the community needs by offering consumer and business products to the businesses, business owners, business principals and employees of such businesses within the community region of NCCFCU Business loans will be limited to the community charter approved by the National Credit Union Administration, including but not limited to loans in Wayne County, NC. Lending outside the field of membership may be solicited for the purpose of purchasing loan participations. The identified geographical trade area will provide for improved and ongoing tracking and monitoring of business loans, and may be outside of the current trade area with Board approval. Loans made or participations purchased outside the current trade area are to be monitored separately The Board of Directors recognizes that NCCFCU may recruit member business loans prior to the loan applicant becoming a member of the credit union. Given the competitive nature of lending, it is acceptable for an applicant to apply for a loan prior to becoming a member. This allows the applicant to determine if the credit union can meet their lending needs. This practice is recognized in all lending facets of the credit union, and is not exclusive to member business lending Insider Policy. Any loan to a volunteer or employee of NCCFCU and their related companies ("Insiders") must be made at the prevailing term and rate at the time the loan is made. NCCFCU shall not make a Business Loan to the Chief Executive Officer/President, Executive Vice President, Vice President or any member of the Asset/Liability Management Committee (ALMAC); any Corporate Officer, Internal Auditor, any Board Member, any CUSO employee or any family members of the restricted positions noted in the "Insider Policy" Loan Solicitation. The credit union will aggressively seek and develop loan and deposit relationships with prospective member businesses. The credit union must exercise a positive approach when considering loan requests in addition to utilizing sound lending practices in the development and structuring of loan transactions Portfolio Nature and Size. The Board assigns to the NCCFCU management, within the lending limits, the responsibility to determine both the nature and size of the business loan portfolio, keeping in mind the community needs and NCCFCU's profit and liquidity goals. NCCFCU shall maintain a total business loan portfolio of no more than the maximum limits as established by NCUA from time to time, and as defined in this section: The maximum amount of credit union assets, in relation to net worth (i. e. maximum percentage of net worth) that can be invested in secured and unsecured business loans shall not exceed 100% of Regular Reserves and Undivided Earnings The maximum amount of credit union assets, in relation to net worth (i. e. maximum percentage of net worth) that can be invested in a given category or type of business loan (723.6c) shall not exceed 100% of Regular Reserves and Undivided Earnings The maximum amount of credit union assets, in relation to net worth (i. e. maximum percentage of net worth) that can be loaned to any one member or group of associated members shall not exceed 15% of Regular Reserves and Undivided Earnings Unless granted a waiver by the Regional Director, NCUA, all member business loans must be secured by collateral, as follows:

3 Page 3 of 12 LIEN MINIMUM LTV REQUIREMENTS LTV ratios for all liens cannot exceed 80% unless the value in excess of 80% is covered All through private mortgage or equivalent insurance but in no case can it exceed 95%. The CU may grant an LTV ratio in excess of 80% only where the value in excess of 80% is covered through: acquisition of private mortgage or equivalent type insurance provided by an insurer acceptable to the credit union; First with PMI or similar type of insurer. insurance or guarantees by, or subject to purchase by an agency of the federal government; or insurance or guarantees by, or subject to advance commitments to purchase by, an agency of a state or any of its political subdivisions. First LTV ratios up to 80%. Second LTV ratios up to 80% Supervision. The development, interpretation and enforcement of NCCFCU s business loan policies and procedures are the responsibility of the Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer Management will re-evaluate the value and marketability of collateral of the loan annually and no later than the anniversary of the loan origination Lending Limits. The maximum aggregate loan limit for a borrower will not exceed the limits allowed by the Rules and Regulations of NCUA, or maximum limits set forth by the NCCFCU Board of Directors Loan Authority. NCCFCU will utilize the services of individuals who meet the minimum requirements of NCUA s business lending regulations (Part 723 of NCUA Rules and Regulations). The qualifications and experience of personal involved in making and administering business loans shall not consist of less than two years of business lending experience as a commercial loan officer in the employ of an insured financial institution. If the experience requirement is not met with current staff, NCCFCU will ensure the expertise is available by utilizing the services of a credit union service organization ( CUSO ), an employee of another credit union, an independent contractor, or other third parties. However, the actual decision to grant a loan will reside with NCCFCU Types of Loans. NCCFCU will make the following types of loans to limited liability companies, corporations, sole proprietors, partnerships, individuals and organizations: Unsecured Loans. Unsecured loans will be made on a short-term basis, supported by documented ability to repay the loan. As a general policy, a one-payment note may be extended once and at the end of that extension, it may be amortized. Before any extension is made, all accrued interest and fees shall be paid. An extension fee may be charged at the discretion of the Business Loan Committee. No unsecured loan will be amortized for a term greater than 84 months.

4 Page 4 of Secured Loans: a. Loans secured by real estate and conforming to the regulations of NCUA. b. Collateral pledge of funds on deposit at NCCFCU (IRAs, pensions are excluded). c. Loans secured by titled vehicles. d. Loans secured by business equipment to be amortized over the useful economic life of the equipment, but not greater than 60 months. e. Loans secured by inventory, for purposes of secondary collateral only. f. Loans secured by pledge of accounts or contracts arising from the sale or lease of goods, for purposes of secondary collateral only. g. Collateral pledge of stocks and bonds. All stock transactions must have a loan-to-value ratio of no less than 80% SBA Loans. NCCFCU will make the following types of SBA loans to businesses: a. Section 7(a) of SBA regulations: The basic umbrella for the SBA s business loan guarantee program. b. Section 504 of SBA regulations: An economic development program to provide real estate and major equipment financing. c. Low Doc: A program that provides loans under $100,001 with a higher guarantee and a streamlined application and process. d. Real Estate: 1. Non-owner occupied property - 75% of appraised value or purchase price. 2. Owner occupied property - 80% of appraised value or purchase price Inventory loans will be granted for the purposes of secondary collateral only, and not as the sole source of collateral for the purpose of any business loan. Inventory will be secured as secondary collateral for a closed end or revolving line of credit loan. The value of the collateral will not increase the loan granted or change the approval in any way as the inventory collateral is of secondary nature Accounts Receivable ( A/R ) loans will be granted for the purposes of secondary collateral only. A/R will not be the sole source of collateral for the purpose of any business loan. The value of the A/R will not increase the loan granted or approved as the collateral is of secondary nature. A/R will be used to secure a closed end loan only Equipment: 70% of verified value Titled vehicles: Per NCCFCU Consumer Loan Policy SBA General. It is the general policy of NCCFCU to secure as much collateral as possible for SBA loans, but in no event will the uncollateralized portion be greater than $50, Types: a. Real Estate: In the event that an SBA loan is utilized to secure financing for commercial real estate, NCCFCU s loan amount will not exceed the lesser of 80% of appraised value or 80% of purchase price. b. Other: Other collateral types include, but are not limited to, equipment, business assets, accounts receivables, personal assets, or cash. In determining LTV ratios for specific types of equipment, NCCFCU will refer to the guidelines in the SBA Standard Operating Procedures manual, but in no case will NCCFCU exceed a 100% LTV ratio Valuation. NCCFCU will determine the value of collateral through an appraisal, income capitalization, business valuation, or other reasonable method.

5 Page 5 of Procedures by Loan Category Real Property: a. Appraisal of the property must be certified by a licensed appraiser. Likewise, all real property loans will require an inspection report performed by a licensed appraiser. The appraiser must be licensed and certified in the state the property being appraised is located in. The appraiser will be categorized as State Certified and State Licensed. b. Title opinion, title insurance & title report are required validating lien holder information. c. At a minimum, an environmental questionnaire will be completed for each property. Generally, loans over $1,000,000 may require a Phase I Environmental Report. Any deviance from this will be reported to the Board of Directors at the next regularly scheduled meeting Inventory and Accounts Receivable, Non-title Equipment: a. A formal evaluation of the inventory, accounts receivable and non-titled equipment is to be performed prior to the loan being made. b. A UCC search will be made. c. A UCC financing statement is to be filed with the Secretary of the State of North Carolina within 15 days of the loan being made. d. Accounts receivable, inventory and equipment will be reviewed, evaluated and verified annually. This validation process will include testing of the inventory or equipment Personal Assets and Titled Equipment. Title must be perfected noting NCCFCU as the lienholder of record Amortization/Maturity of Business Loans: The amortization will vary depending on the loan structure, collateral, purpose and financial strength of the borrower. The following are guidelines in the scheduling of loan maturities for particular loan structures Line of Credit: The maturities for Line of Credit ( L of C ) loans will vary depending on the amount of the line. Payments will be amortized to include principal reduction and interest payments. All L of C loans must be variable rate loans with periodic adjustments Real Estate: The maturities for loans secured by real estate may be amortized for a maximum of 30 years. The length of the amortization will be determined by the condition of the real estate, payment history, loan to value and loan amount. It is NCCFCU s intention to impose balloon payment dates on all MBL-secured by real property. NCCFCU will comply with the NCUA rules and regulations regarding terms and maturities and will impose a balloon payment feature not to exceed 12 years on all real property-secured loans Equipment: The amortization is that corresponding to the remaining economic life of the asset, with a maximum of 60 months Titled vehicles: Maximum amortization term per Business vehicle Policy or specific Business Loan policy, whichever is less SBA Loan Maturities: NCCFCU will consider the use of proceeds, the useful life of the assets being financed, and the borrower s ability to repay when considering a loan s maturity. All SBA loans must be fully amortized Maturities will typically be as follows: a. Working capital: 5-7 years

6 Page 6 of 12 b. Real estate refinance or acquisition: up to 12 years c. Machinery and equipment purchases: usually 7 years or the remaining economic life of the collateral d. Business acquisition: usually 7 years e. Leasehold improvements: usually 10 years (exception: significant rehabilitation that costs at least one third of the purchase price or appraised value of the property) f. Construction: up to 12 years plus such time as is needed to complete construction Undesirable Loan Types: The following types of loans are generally considered undesirable. a. Loans to new enterprises are not desirable if repayment is solely dependent upon the profitability of the operation of the venture. A new enterprise is considered any business less than 3 years old. b. Any loan involving an individual with poor financial condition or credit history. c. Loans to individuals/business unable or unwilling to furnish requested financial information. d. Loans secured by an assigned interest or undivided interest in real estate property. e. Loans made to a poor credit risk on the basis of an endorser (cosigner and/or guarantor). f. Loans for the purpose of financing restaurants, taverns, bars, etc. g. Loans for venture capital. h. Loans secured by negotiable or non-negotiable documents of title, such as receipts or bills of lading. i. Unimproved Land 1417 Interest Rates Interest rates will be determined by using the Prime Lending Rate, the Treasury rate corresponding with the call period (i.e., 6 month, 5 year, 7 year or 10 year as publicly announced by the Federal Reserve Bank) The variable rate will be known as the "Index". Using the Index, the loan officer will determine the spread or margin ("Margin") to be charged over the Index. The Margin for each loan type will be determined using the following criteria: a. Cash flow/rental property Net Worth b. Loan to Value Payment history c. Type of collateral Trends in the business d. Condition of collateral Depository relationship e. Cash flow of business Credit history/credit worthiness Loan Guaranty Program Levels. The Margin will be determined from time to time as the market dictates and may vary from loan to loan. Changes to the above rate structure may be reviewed monthly, but no less than quarterly. Promotional rates, indexes and margins may apply. The rate structure is set by the Rate Review Committee SBA Loan Interest Rates. a. NCCFCU can offer fixed and variable interest rates for SBA loans. The maximum interest rate that NCCFCU can charge is based on a margin over the prime rate as published in the Money Rates Section of the Wall Street Journal published on the date that the SBA receives the application. NCCFCU cannot impose a prepayment penalty on SBA loans. b. Maximum Interest Rate % over prime for loans with maturities of less than seven years.

7 Page 7 of Compliance % over prime for loans with a maturity of seven years or more It is the intention of NCCFCU to be in compliance with all of the governing laws and regulations. The President/CEO will be responsible for insuring that NCCFCU is in compliance with all legislation and regulations pertaining to all business loans Loan Administration A credit file will be established and maintained for each borrower. The file will include a review of the borrower's financial condition, loan history, loan officer's approval, documents and correspondence. a. Two files will be established and maintained for SBA loans, including a servicing file and an as-funded file. b. The servicing file will include initial and ongoing reviews of the borrower's financial condition, loan history, collateral condition, correspondence, and other items necessary to the ongoing monitoring of the loan. c. The as-funded file will contain all information gathered and used to make d. NCCFCU s initial credit decision and to obtain the SBA loan authorization and guarantee, and will be in the SBA format All loans must be supported by current financial information and a business loan application that shall contain sufficient information to support the repayment of the debt. All financial information will be certified by the borrower or audited by an accountant. The type of financial information to be required, the frequency it is to be provided by the borrower and the degree of the analysis will be determined at the time of the loan approval. These requirements will depend on, but will not be limited to, the size of the loan, the type of business, the source of repayment, the financial condition of the business and the type of loan. At a minimum, loan documentation must include a balance sheet, cash flow analysis, income statement, tax data, analysis of leveraging; and comparison with industry average or similar analysis. a. The financial analysis of loans secured by investment real estate will be assessed by the cash flow generated by the property and the owner's total income and personal balance sheet. b. Financial analysis of a business will include, but will not be limited to: sales and earnings, cash flow, liquidity (including ratio analysis), capital structure, trend analysis, and comparison analysis (when available) All loans granted must be guaranteed by an affiliated party. Loans may be guaranteed by other additional guarantors as the loan officer deems necessary. A new guarantee shall be obtained at balloon or call dates Business Loans shall be monitored on an ongoing basis to insure compliance with the loan terms and conditions. The following controls will be maintained: a. Financial Information and Analysis: Each loan file will include the degree and content of future financial information to be provided, and the frequency with which the information will be required. b. Financial information required will be updated and maintained on a periodic basis based upon the certain loan factors including but not limited to: debt service coverage, loan-to-value, credit performance, membership relationship and SBA requirements. The information will be requested as deemed necessary by NCCFCU Real Estate Taxes.

8 Page 8 of Loans secured by real estate will be monitored for payment of property taxes. All taxes will be monitored on a frequent basis, and may be done using a third party vendor Insurance coverage is required on all assets securing Business Loans. The insurance coverage will be monitored monthly to identify pending expirations Balloon payments will be handled as described under existing real estate loan policy Risk Rating Business loans over $50,000 will be risk rated on an annual basis, or more frequently as needed. Loans will be rated on the basis of financial analysis, payment pattern, collateral, status of depository relationship, principal reduction, etc. This process will be done according to the required procedures for loan review Comment sheets will be maintained in each file. These sheets will document all contact with the borrower and other information regarding the account. Supplemental comments may be maintained in the loan servicing system and the customer relationship management system, as applicable An exception list will be maintained to monitor outstanding documentation and other items for the loan file A UCC financing statement system will be maintained to monitor the dates to renew UCC filings The Chief Business Loan Officer is responsible for determining sound valuations and appraisals of collateral used to secure business loans. All inventory and accounts receivable used as secondary collateral must be inspected and/or verified at least annually or as deemed necessary Additional advances or renewals will not be made to loans with an assigned risk rating of 4 without the approval of the President/CEO or Chief Operating Officer All loans receiving advances must comply with current policy and must meet all documentation compliance, or as directed by the above officers to address the specific noncompliance item Loans will be charged off after all collection efforts have failed. Continued collection efforts will be pursued for asset recovery. Redemption of the loan guarantee for SBA loans will be sought after all reasonable collection efforts have failed The CEO, COO and CFO will review disbursed loans. a. All loans are to be checked for correct documentation and conformance with SBA or other applicable policies. b. All loan files will note deficiencies and remediation plans, if any, with periodic reporting to the President. 1. File deficiencies include documents pending from the borrower that are not prerequisites to loan funding based on the Pre-Funding Checklist 2. Remediation plans include periodic reporting of document collection activities.

9 Page 9 of Commercial Real Estate Maximum Loan Limits per Property Type (subject to the limitations imposed in Section 1507): a. Office $1,000,000 b. Industrial $1,000,000 c. Retail $1,000,000 d. Multi-Family $1,000,000 e. Other $1,000, Small Business Administration Maximum Loan Limits Per Loan Type: Type 7(a) $1,000, Type 504 $1,000, All Other Loan Types $500,000

10 Page 10 of Risk Classification The MBL Risk Rating System will be reviewed and, where necessary, amended periodically. The system is designed to rate business loans, SBA loans and commercial real estate loans on a continual and ongoing basis The rating system will provide for the review of the financial position of the borrower as well as the overall performance of commercial real estate collateral NCCFCU will utilize loan history, updated financial data and the most current property operating statements and rent rolls to determine the loan risk rating These ratings will be performed annually at the time of financial review or as deemed necessary by management A loan may be reviewed more frequently than the standard annual period if indicated based on repayment and risk factors ascertained by management. The risk factors may include, but are not limited to, past due taxes, lack of or lapse in insurance coverage, significant change(s) in occupancy/property condition, i.e. deferred maintenance, and other breach of loan covenants The risk classification assigned to a loan will be audited by the President to determine objectivity. No rating will be assigned without current documentation in the file to support the aspects of the risk classification. A loan may be placed on the pending list while waiting for requested documentation. If a loan remains on the pending list for 6 consecutive months due to pending documentation, the rating may be changed or downgraded Rating changes will include the impact that the requested information has on the loan risk rating The rating system is designed from 1 (rating for lowest risk) to 4 (rating for highest risk). a. Excellent Rating 1: A loan rate 1 requires 0% of the balance reserved for the allowance for loan loss. 1. Business performance is very strong, with a historical trend of significant, increasing profitability. 2. Business market is strong and visibly improving. 3. Prior excellent loan performance, with no delinquencies during the life of the loan. 4. Excellent overall credit history. 5. Borrower and/or guarantor have liquidity equal to or greater than 2 years debt service. 6. Borrower and/or guarantor net worth is equal to or higher than loan balance, and increasing. 7. Loan/Value Ratio is 60% or lower. 8. Debt Service Coverage is 1.50:1 or higher. 9. Property's cash flow is not expected to decline below current levels due to expiring leases or other property-specific economic factors. b. Strong - Rating 2: requires.50% of the balance reserved for the allowance for loan loss.

11 Page 11 of Business performance is strong, and demonstrates a historical trend of stable profitability. 2. The business market is established and stable. 3. Good loan performance, with no delinquencies during the past 12-month period. 4. Good overall credit history. 5. Borrower and/or guarantor have liquidity equal to or greater than one year s debt service. 6. Borrower and/or guarantor net worth is equal to or greater than 50% of the loan balance. 7. Loan/Value Ratio is 65% or lower. 8. Debt Service Coverage is 1.30:1 or higher. 9. Property's cash flow is not expected to decline below current levels due to expiring leases or other property-specific economic factors. c. Satisfactory Rating 3: requires 1% of the balance reserved for the allowance for loan loss. 1. Business performance is adequate and demonstrates a stable level of profitability. 2. The business market is established and stable. 3. Acceptable loan performance, with less than 2 late payments within the past 12-month period. 4. Acceptable overall credit history, with some derogatory history noted, but no current delinquencies, judgments, or tax liens. 5. Borrower and/or guarantor liquidity is equal to or greater than 6 months' debt service. 6. Borrower and/or guarantor net worth is equal to or greater than 50% of the loan balance. 7. Loan/Value Ratio is 75% or lower. 8. Debt Service Coverage is 1.25:1 or higher. 9. Property's cash flow is not expected to decline below break-even levels due to expiring leases or other property-specific economic factors. d. Substandard - Rating 4: requires a reserve of 20bp and up to 20% the balance reserved for the allowance for loan loss: 1. Business performance is inadequate, and demonstrates a declining pattern of profitability. 2. Business market is thin and weakening. 3. Loan performance includes one or more 60-day delinquencies during the past 12-month period. 4. Loan is currently past due 45 days or more. 5. Unacceptable overall credit history, with borrower currently delinquent on outside obligations and/or real estate taxes. 6. Borrower and/or guarantor liquidity is equal to less than 3 months debt service, and declining. 7. Borrower and/or guarantor net worth is equal to less than 25% of the loan balance, and declining. 8. Loan/Value Ratio is 80% or higher. 9. Debt Service Coverage is lower than 1.25:1, but higher than 1.0.

12 Page 12 of Property's cash flow is expected to decline below current levels due to expiring leases or other property-specific economic factors. 11. Well-defined weaknesses jeopardize full collection of the debt. 12. NCCFCU would absorb losses even if the debt were collected. 13. Balloon loan that has been repeatedly refinanced or extended. 14. Original terms have been amended to reduce rate and/or lower payments. 15. Collateral not subject to adequate inspection and verification. 16. Primary source of repayment is insufficient, and NCCFCU is relying on a secondary source. 17. Loss does not seem likely, but sufficient problems have occurred, causing NCCFCU to go to great lengths to protect its position to maintain high probability of repayment. 18. Debtors are unable to generate enough cash flow for debt service.