Board of Directors Meeting Noon - Friday April 24, 2020

Campbell Lane Conference Room Bowling Green, KY

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Agenda

April 24, 2020

The agenda for the business meeting will be as follows: Page

I. Call to order, Ascertainment of Quorum

II. Review of Minutes of the March business meeting 4

III. Treasurer’s Report – Carol Glaser 11

IV. Committee ReportsA. Investment Committee–Carol Glaser 17 B. ALCO/Risk Management Committee–James McCaslin 20 C. Supervisory Committee–Steve Winfrey 22 D. IT/Cybersecurity Oversite Committee-Richard Miller

V. Vice President-Lending ReportA. Charge-offs 25 B. Delinquencies 26 C. Bankruptcy 27 D. MBL Participation/Policy 29 E. Business VISA Product & Pricing 78 F. Loan Concentration Report 79 G. Qualitative Factors for ALLL Calculation 80

VI. President’s ReportA. Members AssistedB. By-Pass UpdateC. Triggers for Work Force AdjustmentsD. Meeting with Congressional LeadersE. 401k Investment Policy/Trustees 81 F. SARS – Justin Morris

VII. Chair’s Report – Pat StewartMotions 93 A. Approval of the Consent Agenda

a. Minutesb. Dividend Transferc. Membership Applicationd. ODP Charge-offs

B. Approval of the charge-offs for the month of April inthe amount of $96,050.77.

C. Approval of payment of March monthly dividends of$141,743.12 .

D. Approval of Member Business Loan Policy.E. Approval of the changes to Qualitative Factors for

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ALLL Calculation. F. Approval of 401k Investment Policy/Appointment &

Removal of Trustees for SOCU 401k Plan. Adjournment

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MINUTES OF SERVICE ONE CREDIT UNION BOARD OF DIRECTORS

March 27, 2020 CALL TO ORDER

Chair Pat Stewart called the meeting of Service One Credit Union Board of Directors to order at 12:07 PM at Campbell Lane Conference Room, Bowling Green, KY. A quorum was present via phone.

ROLL CALL Present via phone: Excused: Pat Stewart , Chair Peggy Crowe James McCaslin, Vice Chair Brian Sullivan

Carol Glaser, Secretary/Treasurer Brenda Willoughby, Director

Richard Miller, Director Ann Mead, Director Harold Little, Director Robert Deane, Supervisory Committee Judy Glass, Supervisory Committee Gary Meszaros, Supervisory Committee Brooke Justice, Supervisory Committee Chris Royse, Supervisory Committee Chris George, Supervisory Committee Stephen Carrico, Senior Vice-President/CFO Mark Floyd, VP, Chief Credit Officer Present in person: Steve Winfrey, Supervisory Committee Rebecca Stone, President/CEO

Tony Spitz, EVP, Chief Operations and Technology Officer Michelle Dyer, VP, HR & Organizational Development Sean Moore, VP, Strategic Implementation

Justin Morris, VP, Enterprise Risk Management Brad Brown, AVP, Member Support/Security Officer Myra Dwyer, Executive Communications Specialist Sarah Vaughn, Recording Secretary

Before the minutes were reviewed, Chairman Stewart thanked Stephen Carrico for his 15 years of service to the members of Service One Credit Union. He and other Board members wished him well in his retirement and said how disappointed they were in not being able to

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see him in person and share cake with him today.

MINUTES OF THE SECRETARY Stewart asked for additions or corrections to the February Board minutes included in the packet. Hearing no updates, Stewart recommended approval. Motion to approve as amended by Dr. Harold Little, seconded by Brenda Willoughby. The Board concurred by phone.

TREASURER'S REPORT Carol Glaser reported Total Assets increased by $4,175,700 from the previous month to $182,217,700. Cash and Cash Equivalents increased $2,131,600. Total Loans Receivable decreased $345,800 during February, leaving an ending balance of $128,971,300. Consumer, Real Estate, Credit Card, and Commercial loans decreased a total of $991,800, while Participation loans increased $646,000. Certificates of Deposit investments increased $2,994,000, and AFS securities declined $497,300. Total Liabilities increased $4,200,500 from the previous month-end. Total Deposits increased $4,321,000. Savings and Checking accounts increased a total of $5,799,000 due in part to the posting of all ACH credits early at the end of the month in preparation for conversion. Certificate of Deposits decreased $1,478,700, primarily due to the maturity of a non-member deposit. Remaining Liabilities decreased $120,500.

Members’ Equity decreased $24,800, from Net Loss of $27,400 and an increase of $2,600 in Accumulated Other Comprehensive Gain (Loss) on Investments. Carol referred to the Statement of Income and reported February interest income was $621,700, bringing YTD income to $1,277,900. Interest Expense was $133,200 and was down compared to January. The Provision for Loan Losses was $57,200 in February. Non-Interest Income for February was $208,300. Non-Interest Expenses totaled $629,100 in February. The unrealized gain (loss) on Visa Class B shares reflected a loss of $27,480 in February as it was adjusted to current worth. Net Loss for February was $27,480. Glaser stated the Comparative Statements of Financial Condition as of month-end February 29, 2020, 2019, 2018, are included in the packet.

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Carol noted Total Assets grew $7,305,000 from 2018 to 2019 and $13,519,000 from 2019 to 2020. Total Net Loan growth during the same periods was $10,239,000 and $11,332,000, respectively. Total Deposit Liabilities increased $647,000 from 2018 to 2019 and $18,327,000 from 2019 to 2020.

Carol reviewed the Comparative Statements of Income included in the packet and referred the members to the Board site for additional information. YTD Net Interest Income increased $39,400 from 2018 to 2019 and increased $56,900 from 2019 to 2020. From 2018 to 2019, the YTD Provision for Loan Losses decreased $52,000 and, from 2019 to 2020, increased $108,900. YTD Non-Interest Income increased $52,200 from 2018 to 2019 and decreased $25,400 from 2019 to 2020. YTD Non-Interest Expenses were up $208,800 from 2018 to 2019 and up $169,000 from 2019 to 2020. Finally, YTD Net Income decreased $65,000 from 2018 to 2019 and decreased $260,500 from 2019 to 2020.

Glaser noted that peer group ratios included Net Worth/Total Asset, which is 11.33%. Delinquent Loans/Total Loans is 0.43%. Net Charge-offs/Average Loans is 0.40%. Return on Average Assets is 0.05%. Carol noted the complete financial report is included in the packet. Dr. James McCaslin made a motion to approve the financial report, Dr. Harold Little seconded. The Board concurred via phone.

COMMITTEE REPORTS Chair Stewart asked for reports from committees.

INVESTMENT COMMITTEE: Carol Glaser reported a list of Available for Sale Securities and Non-Negotiable CDs was included in the Board packet. In February, one $500,000 Agency Bond was called at par. Two CDs matured, totaling $750,000. Nine CDs, totaling $3,744,000, were purchased.

Other investments had a total reporting value of $5,015,422, which exceeded their original cost of $4,281,812. Increases in Reporting Values resulted both from earnings capitalized on the investments and from cumulative increases in their market values over their original cost bases. Carol reviewed the listing of individual investments and advised members to review the complete investment report included in the Board packet to determine if they had any questions.

ALCO COMMITTEE REPORT: Dr. James McCaslin reported the committee met on March 17. Minutes will be included in next month’s

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packet. SUPERVISORY COMMITTEE REPORT: Steve Winfrey reported the committee met on March 19. All first quarter tasks were completed with no discrepancies, and second quarter tasks were assigned. Steve informed Board members an RFP is being sent by the supervisory to obtain bids for the CU’s financial statement audit. Minutes will be included in next month’s packet. IT/CYBERSECURITY COMMITTEE REPORT: Dr. Richard Miller updated the Board on post Conversion activities as follows: the DNA Working Gap Data is still being integrated and will be done by the end of March. Post Conversion support with Fiserv/DNA has been established through weekly meetings. All critical digital functionality not implemented at go-live is still pending with Alkami. Dr. Miller stated that SOCU technology management had taken steps to prepare for the technology risk impact of COVID-19. The internal IT department set up 12 terabytes of extra storage to accommodate virtual workstations that would be used to work from home. Templates to forward office phones to cell phones are also being built out.

LOAN VICE PRESIDENT REPORT: Mark reviewed the charge-off report and recommended charge-offs of $53,141.63 for February. No bankruptcies were filed in February, bringing the YTD total to four. Loan delinquency was 0.43%. Floyd discussed two new MBL loans totaling $563,000. Mark introduced loan rate recommendations for pricing SOCU loans. In making these recommendations, an internal loan committee reviewed vehicle loans over the last five years to determine if the amount of risk was priced appropriately. Three areas of credit risk are now included in the management’s review for setting loan rates. Credit Score: is typically considered in pricing loans. In most instances, there is an increase in charge-offs with “D” and “E” paper. Also, our current rates do not include servicing and collection expenses for our loans. Loan to Value (LTV): Currently, loan pricing does not include the amount financed versus the value of the collateral. For example, a 620 FICO could be priced the same as loaning at 80% or 100% of the value of the collateral. The loan team is recommending that our loan pricing includes a slightly better rate for those borrowing at a lower LTV. Age of the Collateral: research on the SOCU loan portfolio indicated that charge-off amounts for vehicles eight years+ old is 50% higher than collateral for prior years. SOCU, unlike most other financial institutions, does not

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require a down payment to obtain a loan. To recover losses associated with the age of the collateral, the loan team recommends increasing the rate as the age of the collateral increases. After the recommended changes were summarized and a new rate sheet was reviewed, the Board approved the new risk pricing. PRESIDENT’S REPORTS: Ms. Stone updated Board members on the Northgate property as follows: A letter from the Commissioner’s office approving the branch relocation was received, and the intent to purchase contract was signed. Both documents are available on the BOD site for viewing. A firm has been hired to complete Environmental Phases one and two. Stone informed Board members the Knicely Center would not be hosting meetings because of COVID-19. The 2020 Annual Shareholders meeting is scheduled for April 23 at Knicely. The Board discussed postponing the annual meeting for three months; tentatively scheduling it for August, should be postponed. There are two seats on the Board that are open for election. Should the Board vote to postpone the Annual Meeting, Rebecca suggested the Board’s nominating committee recommended to the Board that Dr. Little and Dr. McCaslin be appointed to fill those vacancies until the Annual meeting was held. Michelle Dyer spoke about new labor laws in regard to COVID-19. The document is available for viewing on the BOD site, under policies. Tony Spitz followed by explaining about the Crisis Management Team’s (CMT) responsibilities as part of the Business Continuity plan. The CMT met at the beginning of March to discuss and prioritize job functions within the organization. Four teams were identified. He explained one of the triggers for action is to have a portion of our associates work from home. Tony indicated that action would be taken on April 1, 2020. Mr. Spitz reviewed the need to keep branches operational, requiring some associates to work on-site. Based on member volume, Tony recommended keeping drive-thru hours 7 am – 7 pm. Rebecca communicated two relief options were going to be released within the next two weeks. Skip-A-Pay program will available two months early and a 90-day deferment on auto and personal loans for individuals affected by COVID-19. A mortgage relief program is currently being developed. Stone indicated to the Board the management team is considering not renewing the ATM contract with WKU expires this summer. Justin went through a profit and loss report on the ATMs. Mr. Spitz indicated he was

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looking into the feasibility of using the removed ATMs at our Branch locations as SOCU will be required to replace existing ATMs this year due to their operating system not supported, which could cause a security risk. The cost of new ATMs is between $65,000 and $75,000. Additional analysis will be conducted. Justin Morris briefed Board members on deposit rate changes. The Fed decreased rates close to zero, so the internal A&L management followed with a slight reduction in CD and EASY account rates. Morris presented the 2020 budget. Rebecca apologized for the late presentation, but it was the first zero-based budget done in some years. However, the budget was completed before the impact of the coronavirus was known. Rebecca recommended leaving the zero-based budget in place and explain the variances as they occur. This will give us a clear understanding of the impact of the coronavirus. Rebecca noted that both the ATMs and Bypass branch relocation were forecasted in the current budget. Rebecca also noted new corporate resolutions are being presented for approval as a result of Stephen Carrico’s retirement.

CHAIR’S REPORT Justin reported there was one SAR to report for February. It is a continuation of suspected elder abuse.

NEW BUSINESS The following motions were moved, seconded, and passed by the Board

of Directors via phone:

A. To approve the Consent Agenda. 1. Minutes 2. Dividend Transfer 3. Membership Applications 4. ODP Charge-offs (Dr. James McCaslin, Carol Glaser)

B. To approve the charge-offs for February in the amount of $53,141.63. (Dr. Richard Miller, Dr. Harold Little)

C. To approve the payment of January monthly dividends of $133,222.72. (Ann Mead, Carol Glaser)

D. To approve Vehicle Loan Rate updates. (Dr. Harold Little, Brenda Willoughby)

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E. The Board appoints Dr. Harold Little & Dr. James McCaslin to fill the vacancies ending in April until the election at the Annual Shareholders Meeting. (Carol Glaser, Brenda Willoughby)

F. To approve changes in Corporation Resolutions. (Dr. Richard Miller, Dr. James McCaslin)

G. To approve Examiners Acknowledgement. (Brenda Willoughby, Dr. Richard Miller)

H. To approve of Branch Lobby Closures due to COVID-19. (Carol Glaser, Brenda Willoughby)

I. To approve the Annual Meeting postponement due to COVID-19. (Dr. James McCaslin, Brenda Willoughby)

J. To approve the 2020 budget. (Dr. Harold Little, Dr. Richard Miller)

UNFINISHED BUSINESS The following dates have been set for the board meetings at noon: April 24, 2020 May 22, 2020 June 26, 2020 July 24, 2020 August 28, 2020

Chair Stewart adjourned the meeting at 2:30 PM.

Approved, Respectfully Submitted, J. Pat Stewart Carol Glaser Sarah Vaughn Chair Secretary/Treasurer Recording Secretary

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ASSETS 3/31/2020 2/29/2020 Change

Cash and cash equivalents 18,798,222.42$ 19,493,254.86$ (695,032.44)$ Available-for-sale securities 3,149,623.12 2,005,720.60 1,143,902.52Loans receivable: Consumer loans 45,701,415.12 46,743,213.25 (1,041,798.13) Real estate loans 46,062,655.55 44,895,824.91 1,166,830.64 Credit card loans 6,180,164.13 6,324,842.42 (144,678.29) Commercial loans 823,768.16 833,860.20 (10,092.04) Participation Loans 30,623,088.70 30,173,516.90 449,571.80 Total loans receivable 129,391,091.66 128,971,257.68 419,833.98Less allowance for loan losses (1,030,260.48) (991,532.36) (38,728.12) Net loans 128,360,831.18 127,979,725.32 381,105.86Overdrawn shares, net of allowance 37,630.26 11,348.03 26,282.23Certificates of deposit 12,306,000.00 13,455,000.00 (1,149,000.00)Other investments 4,977,970.34 5,015,421.75 (37,451.41)FHLB stock 843,100.00 843,100.00 0.00Accrued interest receivable 540,667.10 497,892.71 42,774.39Property and equipment, net 4,171,995.19 4,179,775.05 (7,779.86)NCUSIF deposit 1,359,632.28 1,359,632.28 0.00Deferred compensation assets 5,621,403.32 5,609,270.68 12,132.64Prepaid expenses and other assets 1,519,161.93 1,767,554.22 (248,392.29)

Total Assets 181,686,237.14$ 182,217,695.50$ (531,458.36)$

LIABILITIES AND MEMBERS' EQUITY

LIABILITIES

Savings accounts 58,840,071.54$ 58,052,814.01$ 787,257.53$ Checking accounts 48,660,617.65 49,829,648.54 (1,169,030.89)Certificates of deposit 52,556,213.32 52,711,619.35 (155,406.03) Total deposit liabilities 160,056,902.51 160,594,081.90 (537,179.39)Deferred compensation liabilities 489,358.59 465,832.01 23,526.58Corporate One Fixed Rate Loan 0.00 0.00 0.00Accounts payable & other liabilities 720,632.12 498,551.21 222,080.91

Total Liabilities 161,266,893.22 161,558,465.12 (291,571.90)

MEMBERS' EQUITY, substantially restricted

Appropriated regular reserve 2,152,517.59 2,152,517.59 0.00Unappropriated earnings 18,475,623.56 18,475,623.56 0.00Accumulated other comprehensive gain (loss) 16,623.16 16,720.64 (97.48)Net income year-to-date (225,420.39) 14,368.59 (239,788.98)

Total Members' Equity 20,419,343.92 20,659,230.38 (239,886.46)

Total Liabilities and Members' Equity 181,686,237.14$ 182,217,695.50$ (531,458.36)$

SERVICE ONE CREDIT UNIONSTATEMENTS OF FINANCIAL CONDITIONAS OF MARCH 31 & FEBRUARY 29, 2020

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Actual Budget Variance VarianceASSETS 3/31/2020 3/31/2020 $ %

Cash and cash equivalents 18,798,222.42$ 14,330,663.21$ 4,467,559.21$ 31.17%Available-for-sale securities 3,149,623.12 3,000,000.00 149,623.12 4.99%Loans receivable: Consumer loans 45,701,415.12 49,111,477.15 (3,410,062.03) -6.94% Real estate loans 46,062,655.55 44,292,991.62 1,769,663.93 4.00% Credit card loans 6,180,164.13 6,460,848.40 (280,684.27) -4.34% Commercial loans 823,768.16 885,126.91 (61,358.75) -6.93% Participation Loans 30,623,088.70 30,008,284.10 614,804.60 2.05% Total loans receivable 129,391,091.66 130,758,728.18 (1,367,636.52) -1.05%Less allowance for loan losses (1,030,260.48) (954,220.01) (76,040.47) 7.97% Net loans 128,360,831.18 129,804,508.17 (1,443,676.99) -1.11%Overdrawn shares, net of allowance 37,630.26 90,000.00 (52,369.74) -58.19%Certificates of deposit 12,306,000.00 8,500,000.00 3,806,000.00 44.78%Other investments 4,977,970.34 5,100,000.00 (122,029.66) -2.39%FHLB stock 843,100.00 843,100.00 0.00 0.00%Accrued interest receivable 540,667.10 550,000.00 (9,332.90) -1.70%Property and equipment, net 4,171,995.19 4,412,435.79 (240,440.60) -5.45%NCUSIF deposit 1,359,632.28 1,359,632.28 0.00 0.00%Deferred compensation assets 5,621,403.32 5,621,951.94 (548.62) -0.01%Other real estate owned 0.00 100,000.00 (100,000.00) -100.00%Prepaid expenses and other assets 1,519,161.93 2,100,000.00 (580,838.07) -27.66%

Total Assets 181,686,237.14$ 175,812,291.39$ 5,873,945.75$ 3.34%

LIABILITIES AND MEMBERS' EQUITY

LIABILITIES

Savings accounts 58,840,071.54$ 57,235,506.15$ 1,604,565.39$ 2.80%Checking accounts 48,660,617.65 43,897,273.48 4,763,344.17 10.85%Certificates of deposit 52,556,213.32 53,086,377.86 (530,164.54) -1.00% Total deposit liabilities 160,056,902.51 154,219,157.50 5,837,745.01 3.79%Deferred compensation liabilities 489,358.59 489,358.59 (0.00) 0.00%Corporate One Fixed Rate Loan 0.00 0.00 0.00 N/AAccounts payable & other liabilities 720,632.12 600,000.00 120,632.12 20.11%

Total Liabilities 161,266,893.22 155,308,516.09 5,958,377.13 3.84%

MEMBERS' EQUITY, substantially restricted

Appropriated regular reserve 2,152,517.59 2,152,517.59 0.00 0.00%Unappropriated earnings 18,475,623.56 18,469,085.68 6,537.88 0.04%Accumulated other comprehensive gain (loss) 16,623.16 0.00 16,623.16 N/ANet income year-to-date (225,420.39) (117,827.97) (107,592.42) 91.31%

Total Members' Equity 20,419,343.92 20,503,775.30 (84,431.38) -0.41%

Total Liabilities and Members' Equity 181,686,237.14$ 175,812,291.39$ 5,873,945.75$ 3.34%

SERVICE ONE CREDIT UNIONSTATEMENTS OF FINANCIAL CONDITION BUDGET COMPARISON

AS OF MARCH 31, 2020

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Y-T-D Budget AnnualMonth Y-T-D Budget Variance Budget

INTEREST INCOME Loans to members:

Interest on Consumer Loans 245,520.14$ 734,798.06$ 760,666.88$ -3.40% 3,158,495.13$ Interest on Mortgage Loans 179,078.86 515,217.75 539,838.83 -4.56% 2,189,269.91 Interest on Credit Cards 51,936.92 164,356.21 168,318.11 -2.35% 684,727.86 Interest on Commercial Loans 3,560.37 10,889.37 8,986.46 21.18% 57,415.72 Interest on Participations 128,666.65 376,520.07 375,466.06 0.28% 1,579,725.12

Investments 49,157.90 134,052.88 162,500.00 -17.51% 650,000.00 Total Interest Income 657,920.84 1,935,834.34 2,015,776.34 -3.97% 8,319,633.74

INTEREST EXPENSE Interest on members' deposits 141,743.12 420,914.98 414,868.24 1.46% 1,619,930.67 Interest on borrowed funds 27.11 39.54 0.00 0.00% 0.00 Total Interest Expense 141,770.23 420,954.52 414,868.24 1.47% 1,619,930.67

Net Interest Income 516,150.61 1,514,879.82 1,600,908.11 -5.37% 6,699,703.06

Provision (credit) for Loan Losses 128,264.09 219,894.60 101,997.56 115.59% 565,942.25

Net Interest Income after provision (credit) for Loan Losses 387,886.52 1,294,985.22 1,498,910.55 -13.61% 6,133,760.81

NON-INTEREST INCOME Fees and Service Charges 211,155.14 654,491.72 623,139.50 5.03% 2,812,664.85

NON-INTEREST EXPENSES Dues & Subscriptions 3,290.37 11,789.76 12,573.00 -6.23% 46,231.73 Examination & Supervision 3,569.09 10,707.27 5,424.80 97.38% 21,799.21 Supplies & Materials 11,706.97 36,829.89 37,916.46 -2.87% 145,905.46 Computer Supplies 3,374.51 9,206.39 12,980.00 -29.07% 50,960.83 Postage & Telephone 14,872.88 43,367.28 62,632.35 -30.76% 221,194.23 Marketing & Promotions 19,227.77 51,348.44 93,740.00 -45.22% 314,160.00 Collection & Loan 50,347.15 130,180.51 134,276.25 -3.05% 605,538.33 Legal & Professional Services 11,535.30 37,293.08 67,139.71 -44.46% 312,327.64ODP Operations 500.00 1,500.00 1,500.00 0.00% 6,000.00

Provision for Overdraft Losses 2,706.37 13,671.09 15,000.00 -8.86% 60,000.00 Draft, ACH & Digital Data Processing 7,496.73 29,858.62 25,395.00 17.58% 73,480.00 Cash Short (Over) (73.49) 40.49 300.00 -86.50% 1,200.00 Bank Service Charges 1,272.94 3,175.90 5,180.00 -38.69% 15,470.00 Compensation and Benefits 338,816.07 1,010,110.64 1,053,175.94 -4.09% 4,196,037.71 Staff Acquisition & Training 400.00 8,327.39 10,962.87 -24.04% 77,689.97 Travel, Meals & Entertainment 115.88 11,230.93 12,641.51 -11.16% 74,466.62 Accounting Service Data Processing 56,286.48 82,316.88 84,861.78 -3.00% 573,533.86 Miscellanous 75.00 824.55 2,500.00 -67.02% 10,000.00 Debit Card Operations 48,658.44 137,831.53 133,401.68 3.32% 554,731.71 Credit Card Operations 23,382.66 84,039.24 73,455.00 14.41% 280,210.00 Depreciation 22,779.86 68,208.21 68,025.68 0.27% 292,926.55 Repairs & Maintenance 6,046.28 22,116.53 33,218.49 -33.42% 158,233.96 Office Occupancy 16,691.26 49,893.00 52,737.50 -5.39% 223,150.00 Insurance 5,682.86 17,048.58 17,400.00 -2.02% 71,100.00 Core & Digital Banking Conversion 111,811.57 146,179.89 134,540.00 8.65% 136,790.00 Conversion Consultation 32,725.75 98,724.56 101,400.00 -2.64% 101,400.00Non-Interest Expenses 793,298.70 2,115,820.65 2,252,378.01 -6.06% 8,624,537.82

Operating Income (194,257.04) (166,343.71) (130,327.97) 27.64% 321,887.84

Non-Operating Gains (Losses) Other Non-Operating Gains (Losses) (45,531.84) (59,076.68) 12,500.00 -572.61% 50,000.00

Net Income (239,788.88)$ (225,420.39)$ (117,827.97)$ 91.31% 371,887.84$

SERVICE ONE CREDIT UNIONSTATEMENTS OF INCOME

PERIODS ENDED MARCH 31, 2020

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ASSETS 3/31/2020 3/31/2019 3/31/2018

Cash and cash equivalents 18,798,222.42$ 18,969,754.57$ 13,081,160.95$ Available-for-sale securities 3,149,623.12 9,700,870.21 13,401,514.00Loans receivable: Consumer loans 45,701,415.12 46,322,122.08 40,502,909.31 Real estate loans 46,062,655.55 40,129,291.08 41,482,208.99 Credit card loans 6,180,164.13 6,507,144.24 6,630,827.89 Commercial loans 823,768.16 0.00 0.00 Participation Loans 30,623,088.70 24,213,665.05 18,469,731.65 Total loans receivable 129,391,091.66 117,172,222.45 107,085,677.84Less allowance for loan losses (1,030,260.48) (816,934.74) (816,113.46) Net loans 128,360,831.18 116,355,287.71 106,269,564.38Overdrawn shares, net of allowance 37,630.26 67,319.41 56,078.00Certificates of deposit 12,306,000.00 4,265,324.01 10,973,500.00Other investments 4,977,970.34 4,867,222.29 4,956,676.39FHLB stock 843,100.00 843,100.00 843,100.00Accrued interest receivable 540,667.10 447,634.43 399,913.61Property and equipment, net 4,171,995.19 4,323,435.89 4,360,156.16NCUSIF deposit 1,359,632.28 1,343,039.08 1,319,273.19Deferred compensation assets 5,621,403.32 6,006,658.26 5,795,454.63Prepaid expenses and other assets 1,519,161.93 2,593,480.46 1,427,404.32

Total Assets 181,686,237.14$ 169,783,126.32$ 162,883,795.63$

LIABILITIES AND MEMBERS' EQUITY

LIABILITIES

Savings accounts 58,840,071.54$ 57,462,067.06$ 60,380,651.00$ Checking accounts 48,660,617.65 46,411,370.48 44,859,965.02Certificates of deposit 52,556,213.32 43,865,519.26 37,655,175.40 Total deposit liabilities 160,056,902.51 147,738,956.80 142,895,791.42Deferred compensation liabilities 489,358.59 812,331.78 638,558.77Corporate One Fixed Rate Loan 0.00 0.00 0.00Accounts payable & other liabilities 720,632.12 949,671.13 474,324.31

Total Liabilities 161,266,893.22 149,500,959.71 144,008,674.50

MEMBERS' EQUITY, substantially restricted

Appropriated regular reserve 2,152,517.59 2,152,517.59 2,152,517.59Unappropriated earnings 18,475,623.56 17,779,243.62 15,857,646.95Accumulated other comprehensive gain (loss) 16,623.16 (35,795.44) 418,963.87Net income year-to-date (225,420.39) 386,200.84 445,992.72

Total Members' Equity 20,419,343.92 20,282,166.61 18,875,121.13

Total Liabilities and Members' Equity 181,686,237.14$ 169,783,126.32$ 162,883,795.63$

SERVICE ONE CREDIT UNIONSTATEMENTS OF FINANCIAL CONDITION

AS OF MARCH 31, 2020, 2019 & 2018

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03/31/20 03/31/19 03/31/18

INTEREST INCOME Loans to members: Interest on Consumer Loans 734,798.06$ 713,133.11$ 651,891.57$ Interest on Mortgage Loans 515,217.75 441,152.88 419,834.91 Interest on Credit Cards 164,356.21 162,869.15 149,693.49 Interest on Commercial Loans 10,889.37 0.00 0.00 Interest on Participations 376,520.07 298,109.84 211,102.49 Investments 134,052.88 138,444.24 133,929.54 Total Interest Income 1,935,834.34 1,753,709.22 1,566,452.00

INTEREST EXPENSE Interest on members' deposits 420,914.98 285,305.98 169,650.17 Interest on borrowed funds 39.54 27,649.32 0.00 Total Interest Expense 420,954.52 312,955.30 169,650.17

Net Interest Income 1,514,879.82 1,440,753.92 1,396,801.83

Provision (credit) for Loan Losses 219,894.60 (25,615.38) 38,741.00

Net Interest Income after provision (credit) for Loan Losses 1,294,985.22 1,466,369.30 1,358,060.83

NON-INTEREST INCOME Fees and Service Charges 654,491.72 629,283.55 622,941.25

NON-INTEREST EXPENSES Association Dues 11,789.76 10,986.87 9,720.25 Examination & Supervision 10,707.27 10,707.27 15,201.45 Supplies & Materials 36,829.89 38,125.47 47,444.41 Computer Supplies 9,206.39 4,993.21 12,098.57 Postage & Telephone 43,367.28 31,285.57 38,173.71 Marketing & Promotions 51,348.44 61,790.20 37,906.42 Collection & Loan 130,180.51 112,033.90 94,265.88 Legal & Professional Services 37,293.08 66,989.34 90,419.66

ODP Operations 1,500.00 1,500.00 28,848.29 Provision for Overdraft Losses 13,671.09 9,742.80 1,730.05 Draft, ACH & Digital Data Processing 29,858.62 17,209.37 24,077.73 Cash Short (Over) 40.49 311.23 199.66 Bank Service Charges 3,175.90 3,486.18 6,064.59 Compensation and Benefits 1,010,110.64 893,204.31 718,085.20 Staff Acquisition & Training 8,327.39 9,860.30 798.26 Travel, Meals & Entertainment 11,230.93 14,790.36 11,597.49 Accounting Service Data Processing 82,316.88 31,564.28 29,186.66 Miscellanous 824.55 5,351.80 3,965.76 Debit Card Operations 137,831.53 125,146.04 126,729.36 Credit Card Operations 84,039.24 55,484.13 53,499.99 Depreciation 68,208.21 69,964.96 70,958.18 Repairs & Maintenance 22,116.53 25,889.02 38,664.47 Office Occupancy 49,893.00 56,281.07 58,845.78 Insurance 17,048.58 16,628.76 16,527.54 Core & Digital Banking Conversion 146,179.89 9,815.78 0.00 Conversion Consultation 98,724.56 86,850.91 0.00Non-Interest Expenses 2,115,820.65 1,769,993.13 1,535,009.36

Operating Income (166,343.71) 325,659.72 445,992.72

Non-Operating Gains (Losses) Other Non-Operating Gains (Losses) (59,076.68) 60,541.12 0.00

Net Income (225,420.39)$ 386,200.84$ 445,992.72$

SERVICE ONE CREDIT UNIONSTATEMENTS OF INCOME

YEARS-TO-DATE ENDED MARCH 31, 2020, 2019 & 2018

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Accumulated OtherAllowance for Regular ComprehensiveLoan Losses Reserve Gains (Losses)

Beginning Balances 977,565.99$ 2,152,517.59$ 13,688.74$

Provision for (credit to) loan losses 219,894.60Recoveries of write-offs 22,651.01Loan write-offs in January (40,658.73)Change in value of AFS securities 379.52Loan write-offs in February (53,141.63)Change in value of AFS securities 2,652.38Loan write-offs in March (96,050.76)Change in value of AFS securities (97.48)Loan write-offs in AprilChange in value of AFS securitiesLoan write-offs in MayChange in value of AFS securitiesLoan write-offs in JuneChange in value of AFS securitiesLoan write-offs in JulyChange in value of AFS securitiesLoan write-offs in AugustChange in value of AFS securitiesLoan write-offs in SeptemberChange in value of AFS securitiesLoan write-offs in OctoberChange in value of AFS securitiesLoan write-offs in NovemberChange in value of AFS securitiesLoan write-offs in DecemberChange in value of AFS securitiesEnding Balances 1,030,260.48$ 2,152,517.59$ 16,623.16$

SERVICE ONE CREDIT UNIONSTATEMENT OF CHANGES IN MEMBERS' EQUITY

YEAR ENDING DECEMBER 31, 2020

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Current Original or Market or OtherType of Maturity Coupon Wtd Amortized Reporting % of

Investment Date Rate Rate Cost Value Total

NEGOTIABLE CERTIFICATES OF DEPOSIT

General Electric CU 08/14/20 3.00% 0.28% 249,000.00 250,825.17 1.23%Aneca FCU 09/21/20 1.90% 0.18% 248,000.00 249,016.81 1.22%American Express Bank 09/21/20 1.25% 0.12% 248,000.00 248,620.00 1.22%USAlliance FCU 09/22/20 2.90% 0.27% 248,000.00 250,070.80 1.22%Affinity CU 09/29/20 1.95% 0.18% 248,000.00 249,120.97 1.22%BMO Harris Bank 03/31/21 1.30% 0.12% 248,000.00 248,744.00 1.22%Wells Fargo Bank 10/18/21 1.95% 0.18% 248,000.00 252,687.20 1.24%Heritage Family FCU 12/10/21 3.25% 0.31% 248,000.00 256,045.13 1.25%UBS Bank 03/11/22 1.00% 0.06% 150,000.00 149,007.00 0.73%Reading Coop Bank 03/21/22 1.00% 0.09% 249,000.00 247,316.76 1.21%Pathfinder Bank 03/13/25 1.30% 0.12% 249,000.00 246,064.29 1.20%

Average coupon rate 1.91% 2,633,000.00 2,647,518.13 12.96%

GOVERNMENT AGENCIES - CALLABLE WITH STEP-UP

FHLMC Bond #3134GBYR7 07/27/20 1.75% 1.75% 500,000.00 502,104.99 2.46%Average coupon rate 1.75% 500,000.00 502,104.99 2.46%

TOTAL AFS SECURITIES (with Average Coupon Rate) 1.88% 3,133,000.00 3,149,623.12 15.41%

CERTIFICATES OF DEPOSITCorporate One FCU 04/27/20 1.55% 0.06% 500,000.00 500,000.00 2.45%Corporate One FCU 04/30/20 2.55% 0.05% 250,000.00 250,000.00 1.22%Corporate One FCU 04/30/20 2.55% 0.05% 250,000.00 250,000.00 1.22%Corporate One FCU 05/26/20 1.50% 0.06% 500,000.00 500,000.00 2.45%Corporate One FCU 05/26/20 1.55% 0.06% 500,000.00 500,000.00 2.45%Corporate America Family CU 05/26/20 2.40% 0.05% 248,000.00 248,000.00 1.21%Evangelical Christian CU 06/03/20 2.30% 0.05% 248,000.00 248,000.00 1.21%Bank of Ozark 06/03/20 2.37% 0.05% 248,000.00 248,000.00 1.21%Corporate One FCU 06/04/20 1.65% 0.07% 500,000.00 500,000.00 2.45%Greenstate CU 06/08/20 2.36% 0.05% 248,000.00 248,000.00 1.21%Corporate One FCU 06/26/20 1.55% 0.06% 500,000.00 500,000.00 2.45%Corporate One FCU 06/26/20 1.50% 0.06% 500,000.00 500,000.00 2.45%Corporate One FCU 07/02/20 1.80% 0.07% 500,000.00 500,000.00 2.45%Bellco CU 07/13/20 2.15% 0.04% 248,000.00 248,000.00 1.21%Clearpath FCU 07/14/20 1.75% 0.04% 249,000.00 249,000.00 1.22%Collins Community CU 07/16/20 1.80% 0.04% 248,000.00 248,000.00 1.21%Sooper CU 08/10/20 2.90% 0.06% 248,000.00 248,000.00 1.21%Bremer Bank 08/28/20 1.40% 0.03% 248,000.00 248,000.00 1.21%Farmers Bank & Trust 08/28/20 1.35% 0.03% 248,000.00 248,000.00 1.21%Corporate One FCU 09/04/20 1.65% 0.07% 500,000.00 500,000.00 2.45%Texas Capital Bank 09/11/20 1.70% 0.03% 248,000.00 248,000.00 1.21%Money One FCU 09/12/20 1.85% 0.04% 249,000.00 249,000.00 1.22%Citadel FCU 09/25/20 1.85% 0.04% 248,000.00 248,000.00 1.21%Metro CU 09/30/20 1.85% 0.04% 248,000.00 248,000.00 1.21%Corporate One FCU 10/05/20 1.80% 0.07% 500,000.00 500,000.00 2.45%Triumph Bank 10/19/20 2.40% 0.05% 248,000.00 248,000.00 1.21%United FCU 11/05/20 1.90% 0.04% 249,000.00 249,000.00 1.22%American First CU 11/17/20 2.40% 0.05% 248,000.00 248,000.00 1.21%Corporate One FCU 12/04/20 1.65% 0.07% 500,000.00 500,000.00 2.45%Texas Dow Employees CU 12/07/20 1.80% 0.04% 248,000.00 248,000.00 1.21%Wells Fargo National Bank 01/13/21 1.65% 0.03% 248,000.00 248,000.00 1.21%First National Bank 03/01/21 1.45% 0.03% 248,000.00 248,000.00 1.21%Safra National Bank 03/31/21 1.05% 0.02% 248,000.00 248,000.00 1.21%Capital One Bank 05/14/21 2.60% 0.05% 248,000.00 248,000.00 1.21%Morgan Stanley Bank 06/07/21 2.50% 0.05% 248,000.00 248,000.00 1.21%UBS Bank 03/04/22 1.60% 0.01% 99,000.00 99,000.00 0.48%UK Federal Credit Union 06/30/22 1.80% 0.15% 1,000,000.00 1,000,000.00 4.89%

Average coupon rate 1.86% 12,306,000.00 12,306,000.00 60.22%

SERVICE ONE CREDIT UNION INVESTMENT PORTFOLIO REPORT

03/31/2020

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Current Original or Market or OtherType of Maturity Coupon Wtd Amortized Reporting % of

Investment Date Rate Rate Cost Value Total

SERVICE ONE CREDIT UNION INVESTMENT PORTFOLIO REPORT

03/31/2020

CAPITAL STOCK Federal Home Loan Bank 0.00% N/A 843,100.00 843,100.00 4.13%

CORPORATE ONE FCU Perpetual Contributed Capital 0.35% 0.35% 900,000.00 900,000.00 4.40%

COMMON STOCK Visa, Inc. N/A 0.00 710,861.44 3.48% Visa, Inc. Valuation Allowance N/A 0.00 (355,430.72) -1.74%

0.00% N/A 0.00 355,430.72 1.74%

COMPANY OWNED LIFE INSURANCE (COLI) North American Life Insurance Co. 2.51% 1.26% 1,320,906.00 1,452,013.88 7.11% Midland Life Insurance Co. 2.51% 1.26% 1,320,906.00 1,452,768.16 7.11%

2.52% 2,641,812.00 2,904,782.04 14.22%CHARITABLE DONATION ACCOUNT North American Life Insurance Co. 2.51% 1.26% 370,000.00 408,878.79 2.00% Midland Life Insurance Co. 2.51% 1.26% 370,000.00 408,878.79 2.00%

2.52% 740,000.00 817,757.58 4.00%

TOTAL OTHER INVESTMENTS 2.06% 4,281,812.00 4,977,970.34 24.36%

TOTAL INVESTMENTS 1.91% $19,720,812.00 $20,433,593.46 100.00%

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SOCU Peer Group1

03/31/20 02/29/20 03/31/19 03/31/20 12/31/20 12/31/19 12/31/19CAPITAL ADEQUACY

Net Worth / Total Assets ** 11.23% 11.33% 11.97% 11.66% 11.31% 11.72% 11.66%Total Delinquent Loans / Net Worth 2.87% 2.68% 2.27% 3.51% 3.68% 2.70% 4.67%Allowance for Loan Losses / Loans 0.80% 0.77% 0.70% 0.73% 0.73% N/A N/A

ASSET QUALITYDelinquent Loans / Total Loans ** 0.45% 0.43% 0.39% 0.55% 0.55% 0.43% 0.76%Net Charge-Offs / Average Loans (Current Year)* ** 0.55% 0.40% 0.30% 0.43% 0.43% 0.45% 0.46%Loan Coverage Ratio 176.08% 179.32% 176.76% 132.68% 132.68% N/A N/ACombined Delinquency and Charge-Off Ratio 1.00% 0.83% 0.69% 0.98% 0.98% N/A N/A

EARNINGSReturn On Average Assets (Current Year)* ** -0.50% 0.05% 0.93% -0.27% 0.21% 0.41% 0.73%Yield on Average Loans * 5.56% 5.53% 5.70% 5.69% 5.67% 5.61% 5.03%Yield on Average Investments * 1.53% 1.42% 1.64% 2.11% 2.15% 2.00% 2.29%Yield on Average Investments (Excluding Cash on Deposit) * 2.61% 2.48% 2.70% 3.49% 3.18% N/A N/AOperating Exp./ Avg. Assets * 4.70% 4.39% 7.35% 5.09% 4.74% 4.52% 3.82%Provision For Loan & Lease Losses / Average Assets * 0.52% 0.34% 0.07% 0.27% 0.35% 0.37% 0.31%Net Interest Margin/Avg. Assets * 3.39% 3.35% 3.55% 3.64% 3.70% 3.57% 3.37%Operating Exp./Gross Income * 83.05% 76.80% 72.71% 84.38% 76.59% 73.00% 69.89%Non-earning Assets / Assets 7.39% 7.08% 8.49% 8.21% 8.53% N/A N/ANet Operating Exp. /Avg. Assets * 3.24% 2.91% 2.80% 3.67% 3.18% 3.35% 2.99%Cost of Funds / Avg. Assets * 0.94% 0.94% 1.34% 0.94% 0.90% N/A N/ANon-Interest Income/Avg. Assets * 1.33% 1.44% 1.72% 1.45% 1.58% N/A N/A

ASSET / LIABILITY MANAGEMENTTotal Loans / Total Shares 80.88% 80.33% 79.37% 84.86% 86.80% 84.19% 76.89%Total Loans / Total Assets 71.25% 70.80% 69.06% 74.44% 75.73% 73.82% 66.49%

OTHER RATIOSNet Worth Growth * -4.37% 0.42% 13.82% -2.41% 1.77% 5.03% 7.30%Market (Share) Growth * 14.93% 24.48% 38.73% -0.21% 5.00% 14.55% 5.26%Loan Growth * -1.36% -4.11% 5.92% 3.00% 8.26% 12.42% 4.83%Asset Growth * 13.00% 21.31% 21.67% -0.36% 5.53% 9.26% 5.40%Membership Growth * -6.11% -9.17% 0.05% N/A N/A N/A N/A

OTHER BENCHMARKSBalance per Member 18,631.99$ 18,639.55$ 16,817.62$ N/A N/A N/A N/ALoan Balance per Member 8,329.00$ 8,301.98$ 7,438.56$ N/A N/A N/A N/AShare Balance per Member 10,302.99$ 10,337.57$ 9,379.06$ N/A N/A N/A N/A$ Revenue per $ of Salary and Benefits * 2.51$ 2.54$ 2.66$ N/A N/A N/A N/AMembers per Associate 263 263 263 N/A N/A N/A N/A

1 $100 Million to $500 Million in Asset Size

* Ratio is annualized.

** One of the Four Former Key Camel Ratios

SERVICE ONE CREDIT UNIONPEER GROUP RATIO COMPARISON

Peer Group Comparison

Actual Budgeted

19

Service One Credit Union ALCO Minutes March 17, 2020

Present: In-Person – Gary Meszaros, Rebecca Stone, Michelle Dyer, Justin Morris, Matt Hutcheson, CJ Bush and Brad Brown

Present: Via Zoom - Dr. James McCaslin, Ann Mead, Dr. Harold Little, Pat Stewart, Stephen Carrico

The purpose of the meeting was to discuss economic updates, overall financial review for SOCU, and the ALM Modeling Results for first quarter 2020.

Justin Morris began the meeting by updating committee members on the current national economy. Recent economic data shows severe sell-off in risk assets due to the unknown economic impact of COVID-19. Global supply chains have been disrupted, and consumer consumption has reduced. Government response to this slowdown was to cut interest rates close to zero. A stimulus package is being discussed which will help individuals and offer bailouts/tax cuts to businesses. Morris believes if the economy doesn’t recover by the end of summer, we could be heading into a recession.

Justin reviewed the CU balance sheet with the committee. He noted the CU has $2 million of available for sale securities and $19.5 million in cash and cash equivalents due to several CDs maturing at the end of January. He indicated that management was reviewing the investment portfolio for alternative investments.

Mr. Morris briefed committee members on the current investment activities and CU liquidity. Gary Meszaros questioned why there was less monies in the “available-for-sale-securities” compared to February 2019. Rebecca explained more monies are in cash than in “available-for-sale-securities”; meaning we need to potentially purchase additional CDs, Bonds, or other securities. She directed Mr. Meszaros to add the “cash/cash equivalents” and “available-for-sale-securities”, which was approximately $21.5 million in 2020 compared to $27.6 in 2019. The difference of $6 million was used to grow our loan portfolio throughout 2018 & early 2019. In respect to CU liquidity, Mr. Morris reported in addition to the $21.5 million, we have lines of credit with FHLB and Corporate One totaling $39 million. Justin also summarized some of the other key liquidity ratios.

Morris summarized the December 2019 Asset and Liability Report from Volcorp. Justin explained with a 3% shock, NEV Ratio, NII, NI, NEV, Sensitivity and other ALM regulatory ratios that are still trending in the “low” categories of risk.

Rebecca Stone reported the Internal Management ALCO Team discussed how current economic environment will materially impact our investments and the balance sheet. The team decided to interview several investment consultants; inquiring about costs associated with reviewing the Credit Union’s current investment portfolio and making recommendations on type investments the CU needed to consider amid the current uncertainty in the markets. Ms. Stone and Mr. Morris felt our investment portfolio needs to be more diverse. The Consultants would review our entire balance sheet, shock our interest rates, review our interest rate pricing/risks, and make recommendations to the Board, Supervisory Committee and Management. Rebecca stated the cost could be around $30 to $40 thousand. The new consultant’s activities would take the place of VolCorp, who currently shocks our portfolio and provides management a report. Stone was asked to explain why the CU “grandfathered’ the Top of the Class checking account. Stone noted

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our EASY checking product is a better product and an alternative to our Top of the Class savings. Easy Checking is a combined primary checking account and Money Market Account (MMA). This product has a tiered interest rate and provides the member with higher than usual checking account interest with no restrictions on the number of withdrawals. The CU needs to develop a more robust checking/savings line up. Stone also noted that a management team lead by Tony Spitz will be looking at our checking and savings products in order to attract non-members to the CU.

Matthew Hutcheson directed committee members to the High Yield Certificate interest chart on screen. Due to the Feds rate cuts, our CD rates are being lowered. Some financial institutions have already lowered their CD rates and we expect others to follow. While our deposit pricing is in the middle of the market, we offer “rate matching” to our long-term members, up to full percent difference. Our front-line staff also encourage CD laddering.

CJ Bush introduced loan rate recommendations. An internal loan committee reviewed vehicle loans over the last five years to determine if the amount of risk was priced appropriately. Three areas of credit risk are now included in the management’s review for setting loan rates. Credit Score: is typically considered in pricing loans. In most instances, there is an increase in charge-offs with some “C” “D” and “E” paper which also increases the cost of servicing and collection expenses. Loan to Value (LTV): Currently, loan pricing does not include the amount financed versus the value of the collateral. For example, today a 620 FICO could be priced the same as loaning at 80% or 100% of the value of the collateral. The loan team is recommending that our loan pricing includes a slightly better rate for those borrowing at a lower LTV. Age of the Collateral: research on the SOCU loan portfolio indicated that charge-off amounts for vehicles eight years+ old are 50% higher than collateral for prior years. SOCU, unlike most other financial institutions, does not require a down payment to obtain a loan. To recover losses associated with the age of the collateral, the loan team recommends increasing the rate as the age of the collateral increases. These recommendations will be brought to the Board at the upcoming meeting.

There being no other discussion, the meeting was adjourned.

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Service One Credit Union

Supervisory Committee Meeting

March 19, 2020

Present via Phone: Brooke Justice, Chris Royse, Chris George, Judy Glass

Present in Person: Steve Winfrey, Gary Meszaros, Brian Sullivan, Justin Morris, Shelly Smith, Rebecca Stone, Brooke Melidona, Brad Brown, Sarah Vaughn

The purpose of this meeting was to discuss policy updates and Supervisory Committee audit assignment reviews for first quarter and schedule second quarter dates.

Justin Morris began the meeting by reviewing the Annual Exam report, which is available for viewing on the Board site. Other than a change in earnings due to Conversion expenses, there wasn’t a change from the previous years' Exam. Overall, SOCU received a 1. Below is an explanation of why SOCU received that rating.

Justin began by explaining that any internal control findings are something that has to address individually, and the CU doesn’t have to agree with the Examiner’s findings. Since the Exam, SOCU has began tracking all audit findings. The Examiners then suggested additional supervisory reviews be completed. Four new audits have since been included in the yearly schedule.

Morris began with Call Report corrections. A call report is run quarterly and provides public records on how a Financial Institution is performing. Some items will be reclassified on the expense report to complete this.

BSA: Some items noted were our SARS reporting, record retention relating to indirect lending, member due diligence – knowing your members, beneficial ownership-who has overall control of an account, and OFAC.

IT Risk Assessment: information needs to be hard copies as well as digital for security purposes. The IT department is currently working to comply. An internal penetration test of controls is scheduled for March/April 2020. We have upgraded most of our security features and equipment since the last testing was completed.

Examiners mentioned presenting an annual GLBA report. Tony Spitz prepared and presented the completed report during the first quarter IT/Cybersecurity meeting, and a summary was included in the January Board packet.

Lending: According to regulations, interest rates must be below 24%. There were a few loans that were over this limit. They have since been corrected and adjusted since recognizing the error. Loan applications are required to disclose what a member is using the funds for if the loan is not an auto or mortgage. Our Chief Credit Officer, Mark Floyd, is working on getting the form resolved in the loan platform, Meridian Link. Floyd also presented the Board with a policy update regarding Troubled Debt Restructure loans. These loans either reduce the interest rate or extended repayment plan. Must show in financial report.

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Rebecca Stone mentioned that regarding COVID-19, Commissioner Vice will not require loan modifications to be listed as TDR. Our Loan Committee will be reviewing these on a case by case basis, as we aren’t requiring documentation, but rather by knowing our member.

Liquidity Policy/Monitoring: Examiners noted the stress-testing measures used to ensure sufficient cash amounts. If cash was needed, there a line of credit with the Federal Home Loan Bank available at a low rate. It was suggested the Supervisory Committee becomes more involved in oversight and perform audits.

Shelly Smith reviewed the first quarter Member Advocacy Committee meeting. Shelly mentioned the focus of the meeting was to address members issues after Go-Live. During the post-Go-Live week, there were approximately 600 emails and 9,000 calls that mostly dealt with account access issues. We attempted to communicate with our members through numerous emails, along with physical mailers, social media posts, and website alerts in the weeks leading up to Go-Live. Unfortunately, the communication was largely unsuccessful. Mr. Morris reviewed one policy update that was approved from the February Board meeting: Records Preservation Program. Justin summarized that it designates the VP, Enterprise Risk Management, as the Credit Union’s Records Preservation Officer. Also, the citation to the Kentucky Administrative Regulation outlining record retention requirements for credit unions was updated. Justin noted that first-quarter assignments were completed on time. Summaries are as followed:

Steve Winfrey summarized the Supervisory Override Report & Associate Access Levels audit was completed too early after Conversion as there was no history to audit. Both members would like to revisit this audit later in the year.

Chris Royse & Chris George reported the Loans Not Reported to Credit Bureau & General Loan Review did not show any discrepancies.

Judy Glass completed the Surprise Cash audit at the Campus branch. There were no variances.

Second-quarter assignments were reviewed:

Quarter 2

• Peggy Crowe, Brian Sullivan & Bob Deane - Surprise Cash Audit • Gary Meszaros & Chris George – Insider Account Review • Judy Glass & Brooke Justice – Member Business Lending Controls Review • Steve Winfrey & Chris Royse – Loan Policy Exception Audit

Brooke Melidona reviewed to the Supervisory Committee her internal audits completed during the first quarter: A General Ledger audit was performed with no teller outages found. An Internal Cash audit at the Glasgow branch had no variances. An audit was

23

completed on member accounts where a P.O. Box was listed both as the physical and mailing address. The physical addresses were verified and updated.

Steve Winfrey told Committee members although the DLMO contract expired in 2018, they have continued to complete audits. Justin has been asked to prepare and send an RFP to multiple firms so that a selection can be made before the year-end 2020 audit is due. Steve will be informing Board members during the March meeting.

The third-quarter meeting date is scheduled for June 8th at Campbell Lane in the Large Conference Room and, if needed, via Zoom.

With there being no other questions, Steve adjourned the meeting.

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1 Automobile Secured 4 Restoration Loans 7 Student Participat 102 Indirect Automobile 5 Real Estate Secured (1st) 8 UK Federal Auto P 113 Other Secured 6 Real Estate Secured (2nd) 9

BANKRUPTCYMEMBER # MEMBER DPD OFFICER LOAN TYPE ORIG DATE ORIG SCORE POOL $ AMOUNT REMARKS

544123061 TANNER,ERIC 158 AMILLS HELOC (Int Only) 09/14/18 690 9 52,858.15$

BK 13 - Rec Order of Confirmation collateral for Home Equity Loan to be surrendered. Assuming $543M market value less 25% for FC, maintenance, carrying costs, costs to sell - sale value is $407M less 1st lien balance of approx $422M leaves no funds for 2nd lienholder.

TOTAL BANKRUPTCY 52,858.15$

RESIDUAL BALANCEMEMBER # MEMBER DPD OFFICER LOAN TYPE ORIG DATE ORIG SCORE POOL $ AMOUNT REMARKS653053085 Rogers, Nicholas 180 AMARCUM Indirect Used Auto 04/25/19 684 5 10,026.52$ 2014 Dodge Ram motor blown sold at auction for $12,000. Send to legal.

493903025 Malik, Majid W 167 TASHLEY Used Auto (Closed- End) 12/08/17 661 4 1,870.76$ 2013 Nissan Verdana sold at auction for $2,000. No legal action, member in FL, small balance.

TOTAL RESIDUAL 11,897.28$

UNABLE TO COLLECTMEMBER # MEMBER DPD OFFICER LOAN TYPE ORIG DATE ORIG SCORE POOL $ AMOUNT REMARKS592583031 Mooneyhan, Brittney 167 AMARCUM Indirect Auto Used 09/01/17 704 5 6,794.54$ 2014 Chrysler T&C sold at auction for $4,700. Sending to legal.

6685823088 Keene, Vincent A 146 CWOOLEY Other Collateral Vehicle 07/25/17 647 4 12,514.37$ 07 Ford F150 repo and sold for $6,000. File sent to attorney for legal action.

DAO-3307 Lovetter, Kamara 180 Lendkey Lendkey Student Loan 09/25/18 NA 10 1,500.00$ Lendkey student loan chargeoffHSY-1208 Tchakalov, Victor 180 Lendkey Lendkey Student Loan 10/08/15 NA 10 7,687.58$ Lendkey student loan chargeoffYPL-7874 Stibbe, Corey 180 Lendkey Lendkey Student Loan 04/06/16 NA 10 2,798.85$ Lendkey student loan chargeoff

TOTAL UNABLE TO COLLECT 31,295.34$

GRAND TOTAL 96,050.77$

CHARGE OFF REPORT

March 2020

Unsecured Credit CardOther UnsecuredSecured Credit Card

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Delinquency by Sub-Category3/31/20

Delinquent Balances by Sub-Category

StandardCategory/Standard Sub-Category

Count Delinquent Count Balance Delinquent Balance Delinquency Ratio

Business Lending

Bus. Used Auto 7 0 $83,725 $0 0%

Bus. Secured 3 0 $404,208 $0 0%

Subtotal 10 0 $487,933 $0 0%

Commercial Real Estate

Other CRE 127 0 $24,438,153 $0 0%

Subtotal 127 0 $24,438,153 $0 0%

Consumer Lending

Student Loan 3,460 7 $5,283,854 $22,982 .43%

Other Unsec. Cons. 3,875 18

$4,658,595 $42,114 .90%

Other Sec. Cons. 589 2 $1,477,817 $12,704 .86%

Cons. Workout 6 0 $0 $0 0%

Cons. Used Auto 6,419 46 $27,912,737 $433,597 1.55%

Cons. New Auto 300 0 $2,197,011 $0 0%

Cons. Credit Card 4,084 15 $6,216,715 $60,972 .98%

Subtotal 18,733 88 $47,746,727 $572,369 1.20%

Residential Real Estate

Second Mortgage 693 1 $9,922,686 $1,356 .01%

First Mortgage 686 1 $46,562,155 $11,400 .02%

Subtotal 1,379 2 $56,484,841 $12,756 .02%

Total 20,249 90 $129,157,655 $585,125 .45%

Powered by nCino | 4/17/2020 10:09 AM

26

Jan-2020 Feb-2020 March-2020 YTDChapter 7

Filed 3 0 3 6Reaffirmed 1 0 2 3No Reaffirmation 2 0 1 3Undetermined 0 0 0 0

Dollars Filed 144,753$ -$ 22,456$ 167,209$ Dollars Reaffirmed 136,722$ -$ 14,014$ 150,736$ Dollars Not Reaffirmed 8,031$ -$ 8,442$ 16,473$ Dollars Undetermined -$ -$ -$ -$

Chapter 13Filed 1 0 0 1$ Reaffirmed 0 0 0 -$ No Reaffirmation 1 0 0 1$ Undetermined 0 0 0 -$

Dollars Filed 10,817$ -$ -$ 10,817$ Dollars Reaffirmed -$ -$ -$ -$ Dollars Not Reaffirmed 10,817$ -$ -$ 10,817$ Dollars Undetermined -$ -$ -$ -$

TotalFiled 4 0 3 7$ Reaffirmed 1 0 2 3$ No Reaffirmation 3 0 1 4$ Undetermined 0 0 0 -$

Dollars Filed 155,570$ -$ 22,456$ 178,026$ Dollars Reaffirmed 136,722$ -$ 14,014$ 150,736$ Dollars Not Reaffirmed 18,848$ -$ 8,442$ 27,290$ Dollars Undetermined -$ -$ -$ -$

No filings in February 2020

Bankruptcy SummaryJanuary 2020

27

Account Name Total

Charge-offCharged-Off

NSF Fees Charged-off

Principal Christopher S. Beatty $113.71 $107.40 $6.31Saraya J. Davidson $1,319.69 $0.00 $1,319.69John Taylor $77.44 $74.25 $3.19Joshua B. Collard $1,284.95 $0.00 $1,284.95Michael R. Russell $326.05 $74.25 $251.80Christopher L. Moore $78.89 $78.89 $0.00Rebecca J. Nichols $179.68 $49.50 $130.18Charles M. Powell $10.82 $0.00 $10.82Martha L. Jewell $14.99 $0.00 $14.99Harrison R. Anglin $17.81 $0.00 $17.81Desiree L. Groves $22.46 $22.46 $0.00LaVance R. Anderson $495.54 $346.50 $149.04Cynthia D. Willis $99.31 $99.31 $0.00Christie D. Walker $24.50 $24.50 $0.00Audrey M. Taylor $24.39 $0.00 $24.39Krystina K. Krueger $506.59 $346.50 $160.09Anthony D. Rhodes $6.63 $6.63 $0.00Jomar D. Taylor $543.41 $74.25 $469.16

$5,146.86 $1,304.44 $3,842.42

Deposit Charge-OffMarch 2020

28

MBL ParticipationsDate of Report: 03/31/2020

Borrower Name Date of Loan Maturity Date Principal Balance Rate Loan Rate Index Risk Rating Part Principal Balance

Lead Credit Union

MEHDI HASHEMI 03/11/2020 04/01/2027 2,475,000.00$ 4.40% FIXED 2 374,962.50$ ABOUND FEDERAL CREDIT UNION REDWOOD CORPORATE ONE LLC 03/09/2020 04/01/2035 2,342,741.53$ 5.00% Prime 2 217,486.54$ IH CREDIT UNIONHLC DAYTON PROPERTIES LLC 03/02/2020 11/01/2029 475,396.05$ 5.25% Treasury 4 85,932.84$ CARDINAL CREDIT UNIONHLC DAYTON PROPERTIES LLC 03/02/2020 11/01/2029 302,062.81$ 5.25% Treasury 4 54,601.03$ CARDINAL CREDIT UNIONHLC DAYTON PROPERTIES LLC 03/02/2020 11/01/2029 257,647.34$ 5.25% Treasury 4 46,572.46$ CARDINAL CREDIT UNIONHLC DAYTON PROPERTIES LLC 03/02/2020 11/01/2029 331,798.59$ 5.25% Treasury 4 59,976.08$ CARDINAL CREDIT UNIONHLC DAYTON PROPERTIES LLC 03/01/2020 08/01/2020 384,000.00$ 5.50% Prime 4 69,412.29$ CARDINAL CREDIT UNIONHLC DAYTON PROPERTIES LLC 03/01/2020 08/01/2020 244,000.00$ 5.50% Prime 4 44,105.72$ CARDINAL CREDIT UNIONHLC DAYTON PROPERTIES LLC 03/01/2020 08/01/2020 208,000.00$ 5.50% Prime 4 37,598.32$ CARDINAL CREDIT UNIONHLC DAYTON PROPERTIES LLC 03/01/2020 08/01/2020 268,000.00$ 5.50% Prime 4 48,443.99$ CARDINAL CREDIT UNIONLAKESHORE AUTO WHOLESALERS INC 02/14/2020 03/01/2030 642,939.69$ 4.88% Treasury 3 99,680.57$ GENFED FINANCIAL CREDIT UNION JCB HOLDINGS LLC 02/14/2020 03/01/2030 4,820,000.00$ 4.50% Treasury 2 463,202.00$ GOLDEN CIRCLE CREDIT UNION R K HOUTZ LLC 01/31/2020 02/01/2027 427,175.98$ 4.75% FIXED 3 54,934.83$ CORNERSTONE FINANCIAL CREDIT UNION LAND ACQUISITIONS LLC 12/23/2019 01/01/2031 1,425,000.00$ 5.00% Prime 4 68,318.89$ TOWPATH CREDIT UNION KEESTONE PROPERTIES OF PULASKI LLC 12/19/2019 01/01/2025 3,054,416.74$ 5.00% FIXED 4 216,863.58$ UNIVERSITY OF KENTUCKY FEDERAL CU KEESTONE PROPERTIES OF TN LLC 12/19/2019 01/01/2025 8,897,839.00$ 5.00% FIXED 4 631,746.57$ UNIVERSITY OF KENTUCKY FEDERAL CU EAST SPARTA HOLDINGS LLC 12/16/2019 01/01/2030 5,547,163.58$ 4.50% Treasury 2 533,082.42$ GOLDEN CIRCLE CREDIT UNION WESTEN PROPERTIES OF BOWLING GREEN LLC 12/16/2019 01/01/2030 4,085,851.94$ 5.00% Treasury 4 996,539.28$ SERVICE ONE CREDIT UNION MRP ZANESVILLE LLC 11/05/2019 11/01/2024 6,017,657.60$ 4.66% FIXED 4 296,716.48$ BAYER HERITAGE FEDERAL CREDIT UNION VAN WERT ALMC LLC 10/29/2019 05/15/2032 -$ 4.75% Prime 4 -$ KEMBA FINANCIAL CREDIT UNIONHLC DAYTON PROPERTIES LLC 10/25/2019 11/01/2029 507,505.90$ 5.25% Treasury 4 91,737.03$ CARDINAL CREDIT UNIONHLC DAYTON PROPERTIES LLC 10/25/2019 08/01/2020 416,000.00$ 5.50% Prime 4 74,305.88$ CARDINAL CREDIT UNIONLANDMARK RECOVERY OF EUCLID LLC 10/16/2019 11/01/2030 648,200.86$ 5.25% Prime 4 63,952.16$ EATON FAMILY CREDIT UNION R K HOUTZ LLC 10/09/2019 11/01/2026 976,681.56$ 4.75% FIXED 3 122,085.19$ CORNERSTONE FINANCIAL CREDIT UNION GILBERT FUNERAL HOME LLC 09/30/2019 10/01/2024 446,437.32$ 5.25% FIXED 2 65,090.56$ OLD HICKORY CREDIT UNION 1890 WEST MAIN LLC 09/30/2019 10/01/2030 565,499.67$ 5.25% Prime 3 101,959.58$ HOPEWELL FEDERAL CREDIT UNION THE VILLAGES OF SUGAR MAPLE RIDGE LLC 09/11/2019 10/01/2030 1,192,753.36$ 4.95% Prime 4 121,899.38$ WEST VIRGINIA FEDERAL CREDIT UNION PRICE AVENUE PROPERTIES LLC 08/27/2019 03/01/2031 -$ 6.50% Prime 4 -$ TRUPARTNER CREDIT UNIONAUTUMN COURT APARTMENTS LLC 08/16/2019 09/01/2024 631,923.32$ 4.75% FIXED 3 94,788.49$ OLD HICKORY CREDIT UNION 28321 SOUTH TAMIAMI TRAIL LLC 08/09/2019 09/01/2024 3,639,833.78$ 5.00% FIXED 4 544,519.13$ UNIVERSITY OF KENTUCKY FEDERAL CU MARIETTA OHIO 1209 LLC 07/12/2019 08/01/2029 6,304,899.73$ 5.45% Treasury 4 494,304.13$ OHIO UNIVERSITY CREDIT UNION TRI COUNTY PROPERTY HOLDINGS LLC 06/14/2019 07/01/2029 1,338,334.93$ 5.00% Treasury 3 163,261.11$ FIRST SERVICE FEDERAL CREDIT UNION THE GOAT MY PLACE LLC 05/31/2019 12/01/2030 1,740,855.82$ 5.00% Prime 4 174,085.58$ TALERIS CREDIT UNIONCHAHINE LLC 05/09/2019 06/01/2024 514,845.19$ 5.75% FIXED 3 51,484.51$ PATHWAYS FINANCIAL CREDIT UNION EASTON HOSPITALITY LLC 03/29/2019 10/01/2027 -$ 5.75% Prime 4 -$ DIRECTIONS CREDIT UNIONTOWN CREEK DG LLC 03/18/2019 04/01/2024 626,844.44$ 5.50% FIXED 3 78,480.92$ SOUTHEAST FINANCIAL CREDIT UNION THRIVE MINISTRIES INC 02/26/2019 03/01/2029 4,760,022.38$ 5.63% Treasury 4 245,141.15$ SUN FEDERAL CREDIT UNION AARTI HOSPITALITY LLC 02/19/2019 09/01/2030 7,168,952.77$ 5.15% Prime 3 660,260.55$ TELHIO CREDIT UNIONTHE COLLECTIVE LEGACY GROUP LLC 02/11/2019 03/01/2026 384,246.09$ 5.25% FIXED 3 49,010.98$ SOUTHEAST FINANCIAL CREDIT UNION WP PROPERTIES QOZB LLC 01/31/2019 02/01/2030 616,547.22$ 5.75% Treasury 4 92,482.08$ PATHWAYS FINANCIAL CREDIT UNION FAIRLAWN PLAZA ASSOCIATES LLC 01/30/2019 02/01/2029 1,437,989.38$ 5.00% Treasury 3 145,742.16$ TOWPATH CREDIT UNIONHJH ASHLAND 1 LLC 01/02/2019 01/01/2024 6,769,070.08$ 5.38% FIXED 3 676,907.00$ IH CREDIT UNION3 STAR LLC 12/14/2018 01/01/2029 3,300,568.60$ 5.25% Treasury 3 299,361.57$ GOLDEN CIRCLE CREDIT UNION BOSCO HOLDINGS LLC 12/14/2018 12/01/2023 737,416.62$ 5.50% FIXED 3 42,548.93$ GOLDEN CIRCLE CREDIT UNION BEST CORPORATE PROPERTIES II LLC 12/12/2018 01/01/2024 878,609.18$ 4.00% FIXED 2 96,559.14$ PATHWAYS FINANCIAL CREDIT UNION LAXMI HOSPITALITY LLC 12/06/2018 01/01/2029 1,418,526.28$ 4.90% Prime 4 354,631.57$ TELHIO CREDIT UNIONLIBERTY RIDGE PROPERTIES LLC 12/04/2018 07/01/2025 5,207,630.26$ 6.00% Prime 4 385,364.63$ IMPACT CREDIT UNIONSAINT PAUL PROPERTIES FUND V LLC 11/28/2018 12/01/2028 1,662,454.97$ 5.25% Treasury 4 170,567.87$ IH CREDIT UNIONPLATFORM II SUPERIOR LLC 11/05/2018 12/01/2030 2,554,633.01$ 5.75% Prime 4 329,547.62$ DIRECTIONS CREDIT UNIONBLACK RIVER COMMUNITY LLC 09/28/2018 10/01/2028 555,027.48$ 5.50% Treasury 2 44,402.19$ CARDINAL CREDIT UNION512 WASHINGTON LLC 09/07/2018 08/01/2023 1,628,132.19$ 4.95% FIXED 2 162,813.21$ CARDINAL CREDIT UNIONS2A2 EQUITIES LLC 09/06/2018 10/01/2023 490,031.28$ 4.35% FIXED 3 48,611.10$ PATHWAYS FINANCIAL CREDIT UNION TECTONICS DEVELOPERS LTD 08/23/2018 08/01/2023 444,052.44$ 4.95% FIXED 3 44,094.40$ CARDINAL CREDIT UNIONHJH COLUMBUS 1 LLC 08/20/2018 09/01/2023 7,974,234.79$ 5.00% FIXED 3 239,227.04$ IH CREDIT UNION800 N HIGH INVESTMENTS LLC 06/28/2018 07/01/2030 33,726,884.00$ 5.25% Prime 4 748,736.82$ WRIGHT-PATT CREDIT UNION MAW III LTD 05/30/2018 02/01/2029 964,825.40$ 5.25% Treasury 4 41,776.94$ DIRECTIONS CREDIT UNIONMAW III LTD 05/30/2018 04/01/2020 597,799.80$ 5.25% Prime 4 25,884.73$ DIRECTIONS CREDIT UNIONMAW III LTD 05/30/2018 02/01/2029 461,130.32$ 5.25% Treasury 4 19,966.94$ DIRECTIONS CREDIT UNIONMAW III LTD 05/30/2018 04/01/2020 -$ 5.25% Prime 4 -$ DIRECTIONS CREDIT UNIONGV 815 LLC 05/29/2018 06/01/2028 460,459.75$ 4.25% Treasury 2 46,045.97$ PATHWAYS FINANCIAL CREDIT UNION 1400 DUBLIN LLC 05/16/2018 06/01/2028 3,191,913.48$ 4.60% FIXED 3 478,787.02$ PATHWAYS FINANCIAL CREDIT UNION THE COLLECTIVE LEGACY GROUP LLC 05/04/2018 06/01/2023 359,616.55$ 4.50% FIXED 3 62,932.89$ SOUTHEAST FINANCIAL CREDIT UNION JJ&W I LTD 04/24/2018 05/01/2028 11,535,738.71$ 4.50% Treasury 3 720,983.66$ GOLDEN CIRCLE CREDIT UNION 7207 CHAGRIN PARTNERS LLC 03/28/2018 04/01/2023 797,624.57$ 4.50% FIXED 3 48,655.09$ CARDINAL CREDIT UNIONWEST PARK CIRCLE PARTNERS I LLC 03/28/2018 04/01/2023 347,201.26$ 4.50% FIXED 3 21,179.27$ CARDINAL CREDIT UNIONBISHOP CHECKMATE LLC 03/21/2018 04/01/2020 1,700,765.63$ 5.00% FIXED 4 136,231.32$ TALERIS CREDIT UNIONGLENCOE BRIDGE LLC 02/09/2018 03/01/2021 472,136.74$ 6.00% FIXED 4 96,315.89$ TELHIO CREDIT UNION155 SPE LLC 02/05/2018 03/01/2023 16,117,736.51$ 4.85% FIXED 3 477,085.00$ TELHIO CREDIT UNIONBEDFORD VENTURES ASSOCIATES LTD 02/02/2018 02/10/2024 949,606.74$ 5.00% FIXED 3 77,487.90$ TALERIS CREDIT UNIONMARKETING RESULTS LTD 11/29/2017 12/01/2027 3,250,913.80$ 4.75% Treasury 3 464,555.57$ PATHWAYS FINANCIAL CREDIT UNION QUAY III LLC 10/31/2017 11/01/2027 3,940,494.77$ 4.50% FIXED 3 473,253.42$ CME FEDERAL CREDIT UNION SEDIQE 3810 LLC 10/19/2017 02/01/2023 645,118.48$ 4.75% FIXED 4 64,511.84$ GLASS CITY FEDERAL CREDIT UNION WATERSIDE VILLAGE LIMITED PARTNERSHIP 10/13/2017 11/01/2022 4,113,523.50$ 4.35% FIXED 4 178,938.27$ IH CREDIT UNIONDLZ CORPORATION 10/12/2017 11/01/2027 606,380.96$ 4.75% FIXED 2 91,866.71$ PATHWAYS FINANCIAL CREDIT UNION LIBBY MANCHESTER ENTERPRISES LLC 10/06/2017 11/01/2024 4,187,734.73$ 4.65% Treasury 3 462,325.91$ BAYER HERITAGE FEDERAL CREDIT UNION BISHOP CHECKMATE LLC 09/29/2017 04/01/2020 3,905,324.85$ 5.00% FIXED 4 312,816.52$ TALERIS CREDIT UNIONLIBERTY RIDGE PROPERTIES LLC 09/12/2017 10/01/2022 3,375,280.33$ 4.75% FIXED 4 331,452.52$ IMPACT CREDIT UNIONROBERT M COURY TRUST UAD AUG 1 1986 MOD 08/31/2017 09/01/2022 349,523.32$ 4.75% FIXED 4 87,380.83$ CARDINAL CREDIT UNIONASPEN OUTPARCEL ASSOCIATES LLC 08/25/2017 09/01/2027 604,554.87$ 4.50% Treasury 3 83,368.11$ BAYER HERITAGE FEDERAL CREDIT UNION WATER STREET HOTEL LLC 08/16/2017 03/01/2029 11,098,680.46$ 5.00% Treasury 4 341,839.35$ WRIGHT-PATT CREDIT UNION VENTURE PARTNERS LLC 06/26/2017 07/01/2022 3,303,318.70$ 4.25% FIXED 3 192,913.81$ GLASS CITY FEDERAL CREDIT UNION CODY COMMERCIAL PROPERTIES II INC 06/23/2017 07/01/2027 2,063,184.60$ 5.00% Treasury 4 206,318.46$ UNIVERSITY OF KENTUCKY FEDERAL CU BELLVILLE HOTEL COMPANY LTD 06/12/2017 06/01/2027 1,725,551.00$ 4.50% Treasury 4 110,607.81$ DIRECTIONS CREDIT UNIONVALLEY VIEW DEVELOPMENT PARTNERSHIP LLC 06/12/2017 06/01/2027 2,518,538.12$ 4.50% Treasury 4 161,438.29$ DIRECTIONS CREDIT UNION

29

MBL ParticipationsDate of Report: 03/31/2020

Borrower Name Date of Loan Maturity Date Principal Balance Rate Loan Rate Index Risk Rating Part Principal Balance

Lead Credit Union

DF REAL ESTATE II LLC 05/26/2017 06/01/2022 245,302.07$ 4.50% FIXED 3 11,995.27$ PARK COMMUNITY CREDIT UNION PINECRAFT LAND HOLDINGS LLC 04/27/2017 05/01/2028 5,087,303.36$ 5.25% Treasury 4 211,631.81$ OHIO VALLEY COMMUNITY CREDIT UNION M&B OLMSTED LLC 03/31/2017 04/01/2027 743,135.29$ 4.25% Treasury 3 59,896.70$ EATON FAMILY CREDIT UNION M&B PARMA LLC 03/31/2017 04/01/2027 369,315.56$ 4.25% Treasury 3 29,766.83$ EATON FAMILY CREDIT UNION M&B CLIFTON LLC 03/31/2017 04/01/2027 283,742.54$ 4.25% Treasury 3 22,869.64$ EATON FAMILY CREDIT UNION OLMSTED INDUSTRIAL PARK LLC 03/31/2017 04/01/2027 225,181.22$ 4.25% Treasury 3 18,149.60$ EATON FAMILY CREDIT UNION DLZ CORPORATION 03/29/2017 05/01/2027 9,470,643.53$ 4.75% FIXED 2 452,696.76$ CME FEDERAL CREDIT UNION JL GUILD LLC 03/24/2017 04/01/2021 2,293,070.54$ 4.50% FIXED 5 326,533.24$ SHAREFAX CREDIT UNION DF REAL ESTATE II LLC 03/21/2017 04/01/2022 951,029.80$ 4.50% FIXED 3 46,505.35$ PARK COMMUNITY CREDIT UNION 4675 NORTH HIGH INVESTMENT LLC 02/28/2017 03/01/2027 535,897.09$ 4.15% FIXED 2 53,589.70$ CME FEDERAL CREDIT UNION DANIEL G KAMIN WAYNESBURG LLC 02/24/2017 02/01/2026 875,367.10$ 4.50% Treasury 3 92,176.15$ GOLDEN CIRCLE CREDIT UNION LAXMI HOSPITALITY LLC 02/06/2017 03/01/2027 2,966,131.38$ 4.25% Prime 2 508,479.66$ TELHIO CREDIT UNION GEORGESVILLE 1711 MP LLC 01/20/2017 02/01/2027 2,379,889.53$ 4.15% FIXED 3 237,988.95$ TELHIO CREDIT UNION HJH SHARONVILLE 1 LLC 12/29/2016 01/01/2022 6,567,320.84$ 4.35% FIXED 3 120,838.69$ UNIVERSITY OF KENTUCKY FEDERAL CU KLB HOLDINGS LLC 11/30/2016 06/30/2020 4,434,018.07$ 5.25% FIXED 5 443,401.80$ UNIVERSITY OF KENTUCKY FEDERAL CU GALATIANS LLC 11/18/2016 12/01/2026 1,474,687.40$ 4.25% Treasury 3 189,128.65$ PATHWAYS FINANCIAL CREDIT UNION SHADOW LANE PROPERTIES LLC 11/10/2016 12/01/2021 458,313.99$ 4.25% FIXED 3 27,498.83$ GLASS CITY FEDERAL CREDIT UNION MALABU REALTY LLC 10/07/2016 11/01/2021 4,499,785.88$ 4.25% FIXED 3 404,980.72$ UNIVERSITY OF KENTUCKY FEDERAL CU BENNETT ENTERPRISES LLC 08/31/2016 03/01/2033 6,087,024.67$ 4.75% Treasury 4 284,264.05$ GLASS CITY FEDERAL CREDIT UNION VICTORY PARTNERS EQUITIES LLC 08/26/2016 09/01/2023 5,873,520.03$ 4.50% FIXED 3 275,468.08$ TALERIS CREDIT UNION NULU GROUP LTD CO 08/23/2016 03/01/2027 179,533.06$ 4.25% Treasury 2 22,441.63$ PARK COMMUNITY CREDIT UNION CROSWELL HIGH ACQUISITION LLC 08/12/2016 09/01/2026 2,134,069.29$ 4.50% Treasury 4 114,812.92$ PATHWAYS FINANCIAL CREDIT UNION OHIO HOTELS LLC 05/27/2016 12/01/2027 5,495,486.62$ 5.00% Treasury 4 234,657.27$ DAY AIR CREDIT UNION S-ONE LLC 03/02/2016 04/01/2026 3,684,272.36$ 4.50% FIXED 2 311,321.01$ CME FEDERAL CREDIT UNION ELYRIA INDUSTRIAL COMPLEX PARTNERS LLC 02/01/2016 03/01/2021 995,023.02$ 3.90% FIXED 2 276,417.39$ CARDINAL CREDIT UNION 12031 SHOREHOUSE LLC 12/30/2015 02/01/2026 1,409,597.74$ 4.00% Treasury 3 137,012.90$ EATON FAMILY CREDIT UNION GARDEN WEST ENTERPRISES LLC 12/30/2015 02/01/2026 1,067,508.68$ 4.00% Treasury 3 151,799.73$ EATON FAMILY CREDIT UNION WEST EDGE ENTERPRIESES LLC 12/30/2015 02/01/2026 805,484.26$ 4.00% Treasury 3 85,220.23$ EATON FAMILY CREDIT UNION SUFFOLETTA REALTY GROUP LLC 12/14/2015 01/01/2026 1,828,534.62$ 4.25% Treasury 3 213,523.28$ UNIVERSITY OF KENTUCKY FEDERAL CU WEBER HOLDINGS NORTH LLC 12/07/2015 01/01/2021 222,621.76$ 4.50% FIXED 4 82,414.70$ FIRST SERVICE FEDERAL CREDIT UNION WEBER HOLDINGS SOUTH LLC 12/07/2015 01/01/2021 112,267.85$ 4.50% FIXED 4 26,023.68$ FIRST SERVICE FEDERAL CREDIT UNION CLOVERLEAF PARTNERS LLC 10/08/2015 11/01/2026 5,046,699.82$ 5.00% Treasury 5 199,406.06$ TALERIS CREDIT UNION MERCHANTS SQUARE LTD 09/04/2015 10/01/2025 2,058,379.15$ 4.75% FIXED 2 134,412.15$ MEDINA COUNTY FEDERAL CREDIT UNION HIGHLAND SQUARE LTD 08/03/2015 09/01/2025 3,173,672.01$ 4.75% FIXED 3 96,162.26$ MEDINA COUNTY FEDERAL CREDIT UNION HIGHLAND SQUARE LTD 08/03/2015 09/01/2025 -$ 6.25% Prime 3 -$ MEDINA COUNTY FEDERAL CREDIT UNION 21 CENTURY HOLDINGS LLC 06/26/2015 07/01/2020 210,436.60$ 4.25% FIXED 2 49,431.55$ PARK COMMUNITY CREDIT UNION STH ENTERPRISES LLC 03/31/2015 04/01/2020 1,401,220.06$ 4.50% FIXED 5 207,520.69$ FORT KNOX FEDERAL CREDIT UNION CASTO INVESTMENTS COMPANY LLLP 03/11/2015 04/01/2025 5,551,115.63$ 4.65% Treasury 2 321,964.70$ KEMBA FINANCIAL CREDIT UNION PENTAGON STORAGE INNS OF AMERICA LLC 11/20/2014 12/01/2024 596,288.34$ 4.13% FIXED 2 60,940.66$ DAY AIR CREDIT UNION KENTUCKY HOST LLC 07/25/2014 02/01/2026 6,515,085.36$ 4.25% Treasury 3 421,279.36$ UNIVERSITY OF KENTUCKY FEDERAL CU KELSI MARIE LLC 03/21/2014 12/01/2024 833,983.25$ 4.25% FIXED 2 37,035.44$ SUN FEDERAL CREDIT UNION GRAND PROPERTY MANAGEMENT LLC 10/10/2013 12/01/2029 1,001,590.73$ 4.25% Treasury 3 44,886.09$ EATON FAMILY CREDIT UNION R P MALONE LLC 05/30/2013 06/01/2023 1,963,239.14$ 5.18% 5 Year Treasury 4 96,548.51$ WRIGHT-PATT CREDIT UNION 127 329,223,802.94$ 24,438,152.78$

30

TO: Board of Directors

FROM: Mark Floyd, CCO

DATE: April 24, 2020

RE: Member Business Loan Policy

The credit union’s Member Business Loan Policy authorizes the credit union to engage in member business lending and provides lending staff with guidelines for originating and servicing member business loans. The recommendations presented today include:

• Clarified definition of net worth to match financial statement language • Removed portfolio limit statements from several loan types to eliminate redundancy.

Portfolio limits are included in a new document titled “Concentration Risk Limits”. • Added 1.2.F – Business Visa product to policy. Refer to Business VISA Program Sheet for

full product terms and conditions. • Removed loans extended for agricultural production from 1.2.G – Prohibited and

Undesirable Member Business Loans. • Added Single Family Residence (Investment Purpose) and Business Credit Cards to 1.3.B

Maximum Amount of Member Business Loans Held by SOCU. • Removed 12.25% of total assets limitation on member business loans originations – the

credit union is not subject to this NCUA limit. • Removed 15.00% of total assets limitation on member business loan originations and

participations – going forward, the credit union will set portfolio limits based on a percentage of net worth. Portfolio limits are detailed in the Concentration Risk Limits worksheet.

31

Service One Credit Union Member Business Loan Policy April 24, 2020

32

CONTENTS SECTION 1.1-GENERAL PROGRAM OVERVIEW .................................................................................. 1

1.1.A-PURPOSE .............................................................................................................................. 1

1.1.B-GOVERNING LAW ................................................................................................................. 1

1.1.C-DEFINITIONS ......................................................................................................................... 1

1.1.D-TRADE AREA ......................................................................................................................... 3

1.1.E-FAIR LENDING STATEMENT .................................................................................................. 3

1.1.F-LOAN REVIEW COMMITTEE .................................................................................................. 3

SECTION 1.2-PERMISSIBLE MEMBER BUSINESS LOAN TYPES ............................................................ 5

1.2.A-GENERAL OBJECTIVE ............................................................................................................ 5

1.2.B-MEMBER BUSINESS REAL ESTATE LOANS ............................................................................. 5

1.2.C-TERM LOANS (NON-REAL ESTATE) ....................................................................................... 5

1.2.D-CONSTRUCTION AND DEVELOPMENT LOANS ...................................................................... 6

1.2.E-LINES OF CREDIT (LOC) ......................................................................................................... 7

1.2.F-BUSINESS VISA ...................................................................................................................... 8

1.2.G-PROHIBITED AND UNDESIRABLE MEMBER BUSINESS LOANS .............................................. 8

1.2.H-PERMISSIBLE LOAN TYPES-QUICK SHEET ............................................................................. 9

SECTION 1.3-MEMBER BUSINESS LOAN LIMITATIONS .................................................................... 10

1.3.A-MEMBER BUSINESS LENDING AND CONCENTRATION LIMITS ............................................ 10

1.3.B-MAXIMUM AMOUNT OF MEMBER BUSINESS LOANS HELD BY SOCU ................................ 11

1.3.C-MAXIMUM AMOUNT OF MEMBER BUSINESS LOANS TO ONE MEMBER ........................... 11

1.3.D-INSIDER MEMBER BUSINESS LOANS .................................................................................. 12

SECTION 2.1-UNDERWRITING, LOAN STRUCTURE, AND APPROVAL PROCESS ................................ 13

2.1.A-BORROWER QUALIFICATIONS FOR DSCR AND CREDIT SCORE ........................................... 13

2.1.B-LOAN DOCUMENTATION REQUIREMENTS ......................................................................... 13

2.1.C-AGGREGATE MEMBER EXPOSURE- INFORMATIONAL REQUIREMENTS.............................. 13

2.1.D-LOAN STRUCTURE, MATURITY, AND AMORTIZATION ........................................................ 14

2.1.E-LOAN APPROVAL FACTORS ................................................................................................. 15

2.1.F-LOAN-TO-VALUE LIMITS ..................................................................................................... 15

2.1.G-APPROVAL PROCESS-ALL MEMBER BUSINESS LOANS ........................................................ 16

2.1.H-QUALIFICATIONS OF MEMBER BUSINESS LOAN LENDING STAFF ....................................... 17

2.1.I-MEMBER BUSINESS LOAN FILES .......................................................................................... 17

2.1.J-USAGE OF BUSINESS LOAN AGREEMENTS AND COVENANTS.............................................. 19

SECTION 2.2-MEMBER BUSINESS LOAN PARTICIPATIONS ............................................................... 20

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2.2.A-GENERAL INFORMATION-PARTICIPATIONS ........................................................................ 20

2.2.B PARTICIPATION TRADE AREA .............................................................................................. 20

2.2.C PARTICIPATION LOAN LIMITS ............................................................................................. 20

2.2.D-UNDERWRITING FOR PARTICIPATIONS .............................................................................. 21

2.2.E-SERVICING AND ANNUAL REVIEW PROCESS FOR PARTICIPATIONS .................................... 21

2.2.F BOARD REPORTING ............................................................................................................. 21

SECTION 2.3-COLLATERAL AND SECURITY REQUIREMENTS ............................................................ 22

2.3.A-GENERAL REQUIREMENTS ................................................................................................. 22

2.3.B-MEMBER BUSINESS REAL ESTATE LOANS ........................................................................... 22

2.3.C-MEMBER CONSTRUCTION/DEVELOPMENT LOANS ............................................................ 23

2.3.D-INVENTORY, ACCOUNTS RECEIVABLE AND NON-TITLED EQUIPMENT ............................... 23

2.3.E-STOCKS, BONDS, MUTUAL FUNDS, AND OTHER MARKETABLE SECURITIES ....................... 24

2.3.F-TITLED VEHICLES ................................................................................................................. 25

2.3.G-LIFE INSURANCE ................................................................................................................. 25

2.3.H-ENVIRONMENTAL REPORTING GUIDELINES ....................................................................... 25

SECTION 3.1-BUSINESS LOAN RISK RATING GUIDE AND LOAN PRICING .......................................... 26

3.1.A-RISK RATING OVERVIEW .................................................................................................... 26

3.1.B-RISK RATING MODEL .......................................................................................................... 26

3.1.C-RISK RATING GRADE DEFINITIONS ...................................................................................... 26

3.1.C-i-GRADE 1: Minimal Risk. ............................................................................................... 26

3.1.C-ii-GRADE 2: Below Average Risk. ................................................................................... 27

3.1.C-iii-GRADE 3: Average Risk. ............................................................................................. 27

3.1.C-iv-GRADE 4: Above Average Credit Risk. ........................................................................ 27

3.1.C-v-GRADE 5: Special Mention. ......................................................................................... 27

3.1.C.vi-GRADE 6: Substandard. .............................................................................................. 27

3.1.C.vii-GRADE 7: Doubtful. ................................................................................................... 27

3.1.C.viii-GRADE 8: Loss. ......................................................................................................... 28

3.1.D-LOAN LOSS RESERVE .......................................................................................................... 28

3.1.E-INTEREST RATE AND FEES ................................................................................................... 28

Section 3.2-LOAN MONITORING, SERVICING AND COLLECTIONS .................................................... 29

3.2.A-ONGOING MINITORING AND SERVICING ........................................................................... 29

3.2.B-COLLECTIONS-GENERAL GUIDELINES ................................................................................. 30

3.2.C-COLLATERAL SPECIFIC COLLECTIONS .................................................................................. 30

3.2.C.i-REAL ESTATE ................................................................................................................. 30

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3.2.C.ii-EQUIPMENT ................................................................................................................. 30

3.2.C.iii-VEHICLES ..................................................................................................................... 31

3.2.C.iv-INVENTORY ................................................................................................................. 31

3.2.C.v-RECEIVABLES ............................................................................................................... 31

3.2.C.vi-OTHER COLLATERAL .................................................................................................... 31

SECTION 3.3-ANNUAL REVIEW PROCESS REQUIREMENTS .............................................................. 33

3.3.A-ANNUAL REVIEW PROCESS OVERVIEW .............................................................................. 33

3.3.B-ANNUAL REVIEW IDENTIFICATION AND TRACKING ............................................................ 33

3.3.C-ANNUAL REVIEW NOTIFICATION ........................................................................................ 34

3.3.D-ANNUAL REVIEW UNDERWRITING ..................................................................................... 34

3.3.E-ANNUAL REVIEW RISK RATING GUIDANCE ......................................................................... 34

3.3.F-ANNUAL REVIEW NON-COMPLIANCE ................................................................................. 35

SECTION 4.1-MEMBER BUSINESS LOAN APPRAISALS ...................................................................... 36

4.1.A-APPRAISAL-GENERAL ......................................................................................................... 36

4.1.B-NON-REAL ESTATE COLLATERAL ......................................................................................... 36

4.1.C-COMMERCIAL REAL ESTATE COLLATERAL .......................................................................... 36

4.1.D-FLOOD HAZARD DETERMINATION ..................................................................................... 38

4.1.E-BALLOON REVIEW SYSTEM ................................................................................................. 38

SECTION 5.1-OVERSIGHT, REVIEW, EXCEPTIONS, AND RISK MANAGEMENT .................................. 40

5.1.A-OVERSIGHT BY BOARD OF DIRECTORS ............................................................................... 40

5.1.B-MANAGEMENT RESPONSIBILITY AND OVERSIGHT ............................................................. 40

5.1.C-EXCEPTIONS REPORTING AND TRACKING .......................................................................... 41

5.1.D-PORTFOLIO STRESS TESTING AND SENSIVITY ANALYSIS ..................................................... 41

5.1.E-CREDIT RISK ASSESSMENT .................................................................................................. 41

5.1.F-MARKET ANALYSIS .............................................................................................................. 41

APPENDIX A-RISK GRADING MATRIX ............................................................................................... 42

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SECTION 1.1-GENERAL PROGRAM OVERVIEW

1.1.A-PURPOSE It is the intent of Service One Credit Union (“SOCU”) to provide business loans to its existing and prospective members. The purpose of this Member Business Loan Policy (“MBL Policy”) is to establish parameters and guidelines for prudent and safe business lending practices.

1.1.B-GOVERNING LAW The policies and practices of SOCU are intended to comply fully with all state and federal laws and regulations governing member business lending and anti-discrimination practices. As a federally insured credit union, SOCU is subject to NCUA’s business lending regulations, Part 723 (12 CFR 723), as well as state law.

1.1.C-DEFINITIONS Associated borrower means any other person or entity with a shared ownership, investment, or other pecuniary interest in a business or commercial endeavor with the borrower. This means any person or entity named as a borrower or debtor in a loan or extension of credit, or any other person or entity, such as a drawer, endorser, or guarantor, engaged in a common enterprise with the borrower, or deriving a direct benefit (as defined in 12 CFR 723.2) from the loan to the borrower. Exceptions to this definition for partnerships, joint ventures and associations are as follows:

(1) If the borrower is a partnership, joint venture or association, and the other person with a shared ownership, investment, or other pecuniary interest in a business or commercial endeavor with the borrower is a member or partner of the borrower, and neither a direct benefit (as defined in 12 CFR 723.2) nor a common enterprise (as defined in 12 CFR 723.2) exists, such other person is not an associated borrower.

(2) If the borrower is a member or partner of a partnership, joint venture, or association, and the other entity with a shared ownership, investment, or other pecuniary interest in a business or commercial endeavor with the borrower is the partnership, joint venture, or association and the borrower is a limited partner of that other entity, and by the terms of a partnership or membership agreement valid under applicable law, the borrower is not held generally liable for the debts or actions of that other entity, such other entity is not an associated borrower.

(3) If the borrower is a member or partner of a partnership, joint venture, or association, and the other person with a shared ownership, investment, or other pecuniary interest in a business or commercial endeavor with the borrower is another member or partner of the partnership, joint venture, or association, and neither a direct benefit (as defined in 12 CFR 723.2) nor a common enterprise (as defined in 12 CFR 723.2) exists, such other person is not an associated borrower.

Commercial loan means any loan, line of credit, or letter of credit (including any unfunded commitments), and any interest SOCU obtains in such loans made by another lender, to individuals, sole proprietorships, partnerships, corporations, or other business enterprises for commercial,

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industrial, or professional purposes, but not for personal expenditure purposes. Excluded from this definition are the following:

• Loans made by SOCU to another federally insured credit union.

• Loans made by SOCU to a credit union service organization (CUSO).

• Loans secured by a 1- to 4-family residential property (whether or not it is the borrower's primary residence).

• Loans fully secured by shares in SOCU allowing for the extension of credit.

• Loans secured by a vehicle manufactured for household use.

• Loans that would otherwise meet the definition of commercial loan and which, when the aggregate outstanding balances plus unfunded commitments less any portion secured by shares in the Credit Union to a borrower or an associated borrower, are equal to or less than $50,000.

Loan secured by a 1- to 4-family residential property means a loan that, at origination, is secured wholly or substantially by a lien on a 1- to 4-family residential property for which the lien is central to the extension of the credit; that is, the borrower would not have been extended credit in the same amount or on terms as favorable without the lien. A loan is wholly or substantially secured by a lien on a 1- to 4-family residential property if the estimated value of the real estate collateral at origination (after deducting any senior liens held by others) is greater than 50% of the principal amount of the loan.

Loan secured by a vehicle manufactured for household use means a loan that, at origination, is secured wholly or substantially by a lien on a new and used passenger car and other vehicle such as a minivan, sport-utility vehicle, pickup truck, and similar light truck or heavy-duty truck generally manufactured for personal, family, or household use and not used as a fleet vehicle or to carry fare-paying passengers, for which the lien is central to the extension of credit. A lien is central to the extension of credit if the borrower would not have been extended credit in the same amount or on terms as favorable without the lien. A loan is wholly or substantially secured by a lien on a vehicle manufactured for household use if the estimated value of the collateral at origination (after deducting any senior liens held by others) is greater than 50% of the principal amount of the loan.

Loan-to-value ratio means, with respect to any item of collateral, the aggregate amount of all sums borrowed and secured by that collateral, including outstanding balances plus any unfunded commitment or line of credit from another lender that is senior to SOCU’s lien position, divided by the current collateral value. The current collateral value must be established by prudent and accepted commercial lending practices and comply with all regulatory requirements. For a construction and development loan, the collateral value is the lesser of cost to complete or prospective market value, as determined in accordance with 12 CFR 723.6.

Residential property means a house, condominium unit, cooperative unit, manufactured home (whether completed or under construction), or unimproved land zoned for 1- to 4-family residential use. A boat or motor home, even if used as a primary residence, or timeshare property is not residential property.

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Net worth of the Credit Union includes undivided unappropriated earnings and appropriated regular reserves.

1.1.D-TRADE AREA SOCU may provide member business loan services to its members who currently or propose to actively engage in business activities within its market area of operations or to qualified members who actively engage in business activities within 100 miles of the outside borders of any market area of operations. The primary market area is defined as geographic areas listed within SOCU’s approved field of membership located within the Barren River Area Development District.

Notwithstanding the paragraph above, SOCU, may, from time to time, make member business loans to qualified members for the purpose of purchasing or refinancing assets that may fall outside of the 100-mile radius described above. Such loans will be offered on a limited basis only to those qualified members who maintain a business relationship with SOCU, and who otherwise engage in business activities within the primary market area as defined above. Approval for loans outside the 100-mile radius will be approved by the President/CEO or Chief Credit Officer. These transactions will be reported to the Board of Directors at the next scheduled meeting.

Additionally, collateral for loans secured by real property must be located within the borders of the Commonwealth of Kentucky.

1.1.E-FAIR LENDING STATEMENT It is the policy of SOCU to make, underwrite, process, approve, administer, service and collect all types of credit consistent within safe and sound operational practices. All decisions relating to credit are based on adequate investigation and the application of sound judgment supported by verified facts. The application of credit guidelines and policies are uniform for all persons and organizations, and are never based on race, color, creed, religion, national origin, sex, marital status, age, disability, family status, and receipt of public assistance or the exercise of rights under the Consumer Credit Protection Act.

1.1.F-LOAN REVIEW COMMITTEE SOCU’s commercial loan program is developed, administered, and enforced by the Loan Review Committee (“LRC”). The LRC consists of the President/CEO, EVP, CCO, AVP Lending, and the BDO. The CCO shall serve as Chairman of this committee and shall be responsible for correspondence and reporting to committee members and to the Board of Directors. The LRC will hold its regular meetings on not less than a quarterly basis to discuss and evaluate the following:

• Overall risk rating segments of total MBL portfolio

o By Servicer

o By Collateral Type, and Geographic Location

• MBL loan growth and trends

• Loans approved with policy exceptions

• Delinquency and charge-off trends

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• Workouts, modifications, TDRs

• Troubled loan reports or watch lists

• Commercial loans approved and denied

• Annual Review Updates

• Loans made outside of the 100-mile trade area radius

• Compliance with all established policy limits for loan types, industry types, and unsecured lending

• Program profitability

Interim meetings may be called to address pending issues as needed. A combination of at least three (3) committee members shall constitute a quorum. Other loan personnel may attend as permitted by the committee. The CCO will announce meeting times and record minutes. Minutes will include discussions of the items listed above. The minutes will be maintained by the CCO. A copy of the LRC’s meeting minutes will be made available at the next available board meeting.

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SECTION 1.2-PERMISSIBLE MEMBER BUSINESS LOAN TYPES

1.2.A-GENERAL OBJECTIVE Member business loan types are defined primarily by the purpose of the extension of credit, incorporating the useful life expectancy of the underlying collateral and the projected repayment ability of the borrower, to arrive at a proper structure and type that mitigates the inherent risk associated with such an extension of credit.

The following are the types of business loans that may be originated by the Credit Union and the requirements of each.

1.2.B-MEMBER BUSINESS REAL ESTATE LOANS Member business loans for the purpose of purchasing or refinancing commercial real estate must satisfy the criteria below:

• Terms will not exceed fifteen (15) years, repaid on a maximum term of twenty-five (25) years.

• Maximum loan amounts up to the legal and in-house lending limits which are outlined in approval authority section below.

• Pricing will be risk based and set by the President/CEO, EVP or CCO. The MBL originators will have some flexibility with pricing, and exceptions to the rate sheet will be considered on a case-by-case basis.

• Generally, the member will be responsible for paying all third-party fees. Origination fees and document prep fees should fall into an established range as set on the rate sheet. Deviation from fees will be determined on a case-by-case basis.

• Maximum LTV (including both funded and unfunded commitments) shall not exceed 85% for 1-4 family residential properties or other commercial properties, unless one of the following apply:

o The loan is also secured by other collateral;

o The loan is subject to an advance commitment of a governmental agency, but in no case shall it exceed 95%; or

• Eligible commercial properties are further defined as retail centers, medical buildings, professional office buildings, convenience stores, hotels/motels, churches, car washes, and warehousing/storage facilities

• Any property type known to have any recognizable environmental concerns will be deemed unacceptable for collateral for a member business loan.

• All originated loans of this type shall not exceed 1.75X of SOCU’s net worth175% of the credit union’s net worth.

1.2.C-TERM LOANS (NON-REAL ESTATE) Member business loans for the purpose of purchasing or refinancing fixed assets or a permanent level of current assets must satisfy the criteria below:

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• Terms shall not exceed seven (7) years, unless guaranteed by a governmental agency, but shall in no case exceed ten (10) years.

• Maximum loan amounts up to the legal and in-house lending limits.

• Pricing will be risk based and considered on a case-by-case basis.

• Fees will be determined on a case-by-case basis.

• Maximum LTV ratio shall not exceed 80% unless one of the following apply:

o The loan is also secured by other collateral; or

o The loan is subject to an advance commitment of a governmental agency, but in no case shall it exceed 95%.

o SOCU determines and documents that the collateral is commensurate with the level of risk associated with the size and type of the commercial loan.

• Vehicles other than fleet vehicles are exempt from these LTV requirements.

• Maximum portfolio of such loans shall not exceed 20% of the credit union’s net worth.

1.2.D-CONSTRUCTION AND DEVELOPMENT LOANS A construction or development loan means any financing arrangement to enable the borrower to acquire property or rights to property, including land or structures, with the intent to construct or renovate an income producing property, such as residential housing for rental or sale, or a commercial building, such as may be used for commercial, industrial, or other similar purposes. It also means a financing arrangement for the construction, major expansion or renovation of the property types referenced in this section. The collateral valuation for securing a construction or development loan depends on the satisfactory completion of the proposed construction or renovation where the loan proceeds are disbursed in increments as the work is completed. A loan to finance maintenance, repairs, or improvements to an existing income producing property that does not change its use or materially impact the property is not a construction or development loan.

The following requirements apply to all construction or development loans made by SOCU:

• Terms shall not exceed one (1) year.

• 80% maximum LTV ratio (unless a part of an authorized SBA 504 or 7(a).

• Draws shall be closely monitored to ensure proper use and anticipated progress that correlates to the funds extended.

• Appraisals of property pledged will be done if and as required in NCUA Rules Part 722, more particularly described in the Member Business Loans Appraisal section of this MBL Policy.

• Title searches (initial and final) will be conducted indicating that a valid lien can be and was perfected and subsequent title insurance as required.

• Confirmation of adequate insurance coverage with SOCU listed as loss-payee.

• All member business real estate loans shall be evaluated for risk of environmental

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contamination. This will follow the environmental reporting guideline section 2.3.G.

• Funds may be disbursed based on project complexity.

• Periodic materials/mechanic lien waivers required.

• Periodic inspections by qualified person, generally on one-third completion basis. Other specific draw schedules and requirements may be set forth by underwriting staff as part of the approval.

• Qualified personnel representing the interests of SOCU must conduct a review and approval of any line item construction budget prior to closing the loan.

• The Credit Union will establish a requisition and loan disbursement process.

• Release or disbursement of loan funds occur only after on-site inspections, documented in a written report by qualified personnel representing the interests of SOCU, certifying that the work requisitioned for payment has been satisfactorily completed and the remaining funds available to be disbursed from the construction and development loan is sufficient to complete the project.

• Each loan disbursement is subject to confirmation that no intervening liens have been filed.

• Maximum portfolio of such loans shall not exceed 15% of the credit union’s net worth.

1.2.E-LINES OF CREDIT (LOC) Member business lines of credit for the purposes of temporary expansion of current assets must satisfy the following criteria:

• Terms shall not exceed two (2) years.

• Monthly interest payments are required.

• Pricing will be risk based and considered on a case-by-case basis.

• Fees will be determined on case-by-case basis.

• Maximum LTV ratio shall not exceed 80% unless one of the following apply:

o The loan is also secured by other collateral; or

o The loan is subject to an advance commitment of a governmental agency, but in no case shall it exceed 95%.

• Based on the intent of the LOC, SOCU may require an annual “clean-up” of the LOC. A “clean-up” period is defined as using and reducing the LOC to a zero balance at some point in time within one (1) year. Any LOCs that, during the normal course of business, were not reduced to a zero balance during the previous term, will be closely evaluated and reviewed to determine whether or not the failure to reduce to zero is significant and representative of underlying material risk. If a determination is made that the failure poses unreasonable risk, the line availability shall be closed, and the remaining balance shall be amortized in a reasonable time period based on customary factors otherwise

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described in this MBL Policy. If a determination is made that the failure was reasonable in nature, and that the borrower(s)/guarantor(s) exhibit financial strength sufficient to warrant such activity, the line may be renewed under the normal guidelines of this MBL Policy.

• Maximum portfolio of such loans shall not exceed 15% of net worth for LOC’s secured with real estate and 5% of net worth for LOC’s not secured with real estate.

1.2.F-BUSINESS VISA Credit cards for business use are permitted with the following conditions.

• Monthly payment is 2.00% of the card balance or $25.00 minimum.

• Pricing will be risk based; variable indexed to the Prime rate as of December 1st annually.

• Maximum rate is 24.00%.

• Minimum credit line is $3,500 and the maximum is $25,000.

1.2.G-PROHIBITED AND UNDESIRABLE MEMBER BUSINESS LOANS SOCU does not make the following member business loans:

• Member business loans to illegal aliens.

• Member business loans secured by assets located outside of the United States.

• Member business loans secured by international securities/deposit accounts.

• Member business loans for money service operations and pawn shops.

• Member business loans for purposes of internet gambling.

• Member business loans secured only by closely held stock.

• Member business loans to individuals or businesses unable or unwilling to furnish requested financial information.

• Member business loans that constitute a violation of state or federal Law or regulation.

• Member business loans to start-up businesses (operating less than two (2) years). Residential real estate (1-4 unit) can meet this requirement with the ownership of other real estate and/or previous involvement in property management.

• Member business loans secured by artwork, jewelry or antiques, unless taken as inventory during the normal course of a business loan that is otherwise fully secured.

• Member business loans secured by livestock.

• Member business loans secured by mineral rights/leases.

• Member business loans secured by copyrights/patents.

• Member business loans extended for the purpose of agricultural production.

• Member business loans extended for or secured by adult themed stores or businesses.

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• Member business loans for Taxi medallions.

• Member business loans for businesses associated with production and/or sale of CBD oils, hemp, or any other cannabis related products.

In general, undesirable loans should not be originated. An undesirable loan includes, but is not limited to the following:

• Loans where the repayment ability of the borrower is based solely or in large part on projected cash flow, where no significant outside repayment support exists.

• Any loan involving an individual with poor financial condition or credit history.

• Loans made to a poor credit risk on the basis of an endorser.

• Loans for venture capital.

1.2.H-PERMISSIBLE LOAN TYPES-QUICK SHEET Quick Sheet-Guidelines-All Loan Types

Collateral Type LTV Max Amortization Max (Years)

Term Max (Years)

1-4 Unit Residential 85% 25 15

5+ Multifamily Residential 85% 25 15

Retail Strip Centers, Professional Office Buildings, Convenience Stores

80% 25 10

Hotel/Motel 80% 25 10

Commercial Warehouse/Storage 80% 20 10

Car Wash, Movie Theater, Church 75% 20 10

Construction/Land Development 80% NA 1

Equipment 75% 10 10

Raw Land 65% 20 7

Stock/Marketable Security 60% 5 5

Inventory/Account Receivable 50% 2 2

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SECTION 1.3-MEMBER BUSINESS LOAN LIMITATIONS

1.3.A-MEMBER BUSINESS LENDING AND CONCENTRATION LIMITS Within the limits set forth in this MBL Policy, the Board of Directors assigns to the Loan Review Committee the responsibility to determine the size and nature of SOCU’s commercial loan portfolio with consideration to the needs and desires of member borrowers and the Credit Union’s profit and liquidity goals. However, SOCU’s total member business loan portfolio including unfunded commitments shall not exceed 175% of the credit union’s net worth.

For purposes of determining SOCU’s limit on member business loans, member business loan means any commercial loan (as defined above), except that the following commercial loans are not member business loans and are not counted toward the aggregate limit on SOCU’s member business loans:

• Any loan in which a federal or state agency (or its political subdivision) fully insures repayment, fully guarantees repayment, or provides an advance commitment to purchase the loan in full; and

• Any non-member commercial loan or non-member participation interest in a commercial loan made by another lender, provided SOCU acquired the non-member loans and participation interests in compliance with all relevant laws and regulations and it is not, in conjunction with one or more other credit unions, trading member business loans to circumvent the aggregate limit.

Any loan secured by a lien on a 1- to 4-family residential property (as defined above) that is not a member's primary residence (as defined above), and any loan secured by a vehicle manufactured for household use (as defined above) that will be used for a commercial, corporate, or other business investment property or venture, or agricultural purpose, is not a commercial loan but it is a member business loan (if the outstanding aggregate net member business loan balance is $50,000 or greater) and must be counted toward the aggregate limit on SOCU's member business loans.

For the purposes of NCUA form 5300 reporting, SOCU's net member business loan balance is determined by calculating the outstanding loan balance plus any unfunded commitments, reduced by any portion of the loan that is secured by shares in the Credit Union, or by shares or deposits in other financial institutions, or by a lien on a member's primary residence, or insured or guaranteed by any agency of the federal government, a state or any political subdivision of such state, or subject to an advance commitment to purchase by any agency of the Federal Government, a state or any political subdivision of such state, or sold as a participation interest without recourse and qualifying for true sales accounting under generally accepted accounting principles.

In general, SOCU shall seek to maintain an industry mix within its member business loan portfolio that ensures diversification and avoids unreasonable concentration, subject to the following limits.

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Industry SOCU Net Worth Limit

Manufacturing Up to 65%

Retail/Wholesale Up to 65%

Transportation Up to 15%

Real Estate Related Industries Up to 100%

Hospitality Up to 15%

Health and Social Related Industries Up to 50%

Warehousing (including self-storage and mini warehouse) Up to 10%

1.3.B-MAXIMUM AMOUNT OF MEMBER BUSINESS LOANS HELD BY SOCU The maximum outstanding balance for each type of member business loan will be as follows:

Loan Type MBL Portfolio Limit

Member Business Real Estate 175% of net worth

Construction / Development 15% of net worth

Single Family Residence (Investment Purpose) 25% of net worth

Term Loans (Non-Real Estate) 20% of net worth

Lines of Credit (LOC) (Real Estate) 15% of net worth

Lines of Credit (LOC) (Non-Real Estate) 5% of net worth

Unsecured Loans 10% of net worth

Business Credit Cards 15% of net worth

1.3.C-MAXIMUM AMOUNT OF MEMBER BUSINESS LOANS TO ONE MEMBER The maximum aggregate member business loan limit for a borrower shall not exceed 10% of SOCU’s net worth without approval by the Board of Directors. The maximum aggregate amount of loan commitments to any member or group of associated members shall not exceed 15% (excluding personal residence) of net worth.

Member business loans or any portion of the loans that are excluded from this amount are those secured by shares in the Credit Union or deposits in another financial institution, those fully or partially insured or guaranteed by a government agency and those subject to an advance commitment to purchase by a government agency.

The maximum unsecured member business loans extended to any one member or group of

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associated members may not exceed $100,000 in aggregate.

1.3.D-INSIDER MEMBER BUSINESS LOANS Any loan to a member of SOCU’s Board of Directors or a SOCU employee (including immediate family members of a director or employee living in the same household) and his or her related business(es) must be made on the same terms as those prevailing at the time for comparable loans to non-directors and non-employees.

The Credit Union will not make any member business loans to the President/CEO, any member of the Executive Team, or any employee of the credit union who has underwriting or decision approval authority. This limitation would also include any immediate family member (meaning a spouse or other family member living in the same household) of any individual identified in this paragraph. See 12 CFR 723.7(a) for additional requirements and limitations. The Credit Union will not make any commercial loan to an associate borrower (as defined above) with respect to the persons identified in this paragraph.

Any MBL extended to a Director, member of the Supervisory Committee or Associate of the Credit Union or their immediate family member must be approved by the Board of Directors.

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SECTION 2.1-UNDERWRITING, LOAN STRUCTURE, AND APPROVAL PROCESS

2.1.A-BORROWER QUALIFICATIONS FOR DSCR AND CREDIT SCORE Generally, member business loan funds will only be extended to individuals or entities whose principals exhibit a minimum current credit score of 660 or higher and exhibit a debt service coverage ratio (DSCR) of at least 1.20:1. Clear and apparent offsetting strengths are to be used to support credit packages that do not meet these qualifications.

2.1.B-LOAN DOCUMENTATION REQUIREMENTS Each request for an extension of credit or an increase in an existing loan or line of credit will be supported by the following documentation:

• Commercial loan application

• Recent credit report

• Appropriate documentation of collateral (see below)

• Balance sheet

• Cash flow analysis including primary borrower DSCR, project/portfolio DSCR, guarantor DSCR, and global DSCR

• Income statement

• Tax data

• Leveraging analysis

• Financial statements for the individual borrower and his or her business

• Personal and business tax returns and supporting documentation. Tax extension(s) will be requested from borrowers whom have filed for an extension

• Sources and uses of funds; detailed schedules of real estate, partnership investments, securities owned, and notes receivable, when possible; and any other appropriate documentation

• Projections when historic performance does not support projected debt payments, supported by reasonable rationale and at a minimum, a projected balance sheet and income and expense statement

2.1.C-AGGREGATE MEMBER EXPOSURE- INFORMATIONAL REQUIREMENTS Member Business Loans often result in a long-standing relationship with the member borrower and the credit union. Often, an initial loan request will be followed with a subsequent loan request(s) as member borrowers look to bring additional lending business to SOCU or as they find new business opportunities. As such, multiple loan requests to the same borrower group will follow these general guidelines with respect to the aggregated lending exposure that results from any and all existing loans currently on the books, as well as pending loan requests in consideration. Furthermore, total aggregate member exposure includes those loans booked onto the core operating system as well as any loans that are originated through any past or present CUSO relationships. Unfunded

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commitments will be viewed as fully drawn in this determination unless otherwise noted.

The chart below is included as general guidance for Member Business Lending staff. It is recognized that in the normal course of business, there are times when there could be a case made to vary from this chart. It is solely at the discretion of the approving authority or authorities to make any variance from the requirements. This variance will be supported by rationale to be documented in the credit memo.

Total Aggregate Member Exposure

Informational Requirements

< or =$50,000 PFS, 1 year personal and business tax returns, CBR

$50,001-$250,000 Generally, 2 years of personal and business tax returns, PFS <12 months, CBR <3 months aged. Other documentation requirements at the discretion of the approving authorities.

$250,001-$1,000,000 Generally, 2 years of CPA prepared personal and business tax returns for borrowers and guarantors, PFS <12 months aged, CBR <3 months aged, rent roll (if available), debt schedule, business balance sheet (if available). Liquidity to be verified as per the recommending/approving authorities. (75% to be considered verified at the time of first loan, subsequent updates as required by approving authority) Interim financials encouraged after 4 months of current year and when tax extensions have been filed.

> $1,000,000 Generally, 3 years of personal and business tax returns for borrowers and guarantors, audited financial statements, PFS<6 months aged, CBR <3 months aged, rent roll and debt schedule, business balance sheet. Liquidity verified with statements <6 months aged (75% to be considered verified at the time of first loan, subsequent updates as required by approving authority) Interim financials required after 4 months into current year.

2.1.D-LOAN STRUCTURE, MATURITY, AND AMORTIZATION Amortization will vary depending on loan structure, collateral, purpose and financial strength of the borrower. The following guidelines apply to loan maturities for particular loan structures:

• Loans secured by real estate may be amortized for a maximum of twenty-five (25) years.

• Condition, payment history, loan to value, and loan amount will be considered when determining the terms of individual amortizations.

• Loans secured by depreciable assets other than real estate will have amortizations corresponding to the estimated remaining life of such assets.

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• Maturities for lines of credit will be limited to two (2) years and shall be structured as monthly interest only payments with principal due upon maturity.

2.1.E-LOAN APPROVAL FACTORS When making a business loan, SOCU must take into consideration many factors to evaluate credit risk, including but not limited to:

• The financial trends and condition of the borrower;

• Thorough due diligence of the principal(s) to determine whether any related interest of the principal(s) might have a negative impact or place an undue burden on the borrower and related interests with regard to meeting the debt obligations with the Credit Union;

• Quality of the borrower’s financial statement;

• The financial strength of the business and guarantors;

• The degree of certainty of the source(s) of repayment;

• Multiple sources of repayment;

• The existence and quality of collateral;

• Leverage;

• Management ability of principals;

• Industry risk and the impact of current market conditions on the borrower and associated borrowers and guarantors (as defined above);

• The probability that payment will be timely; and

• The terms of the loan.

When historic performance does not support projected debt payments, a borrower-prepared projection will be requested and must be supported by reasonable rationale and should include a projected balance sheet and income and expense statement.

2.1.F-LOAN-TO-VALUE LIMITS In addition to other sections of this MBL Policy, the following loan-to-value (“LTV”) limits are to serve as maximum guidelines:

Collateral Type LTV Policy Limit

1-4 Family Residential Properties 85%

Multifamily 85%

Commercial Real Estate-Other 80%

Construction / Development 80%

Raw Land 65%

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Equipment 75%

Stock/Marketable Security 60%

Inventory 50%

Accounts Receivable 50%

The above limits will be used in the analysis of both new and existing credits to determine applicable LTVs. Exceptions can be approved by either the President/CEO or CCO and are allowed only if the approving authority determines and documents that the collateral is commensurate with the level of risk associated with the size and type of commercial loan.

2.1.G-APPROVAL PROCESS-ALL MEMBER BUSINESS LOANS Approval of a commercial loan shall be administered based on the aggregate exposure (regardless of loan type) to an individual borrower, combined with any related individual or entity, less balances secured by loans on primary dwellings and/or outstanding consumer loans.

Approval authority for commercial loans up to $1,000,000 is delegated to the Loan Review Committee by the Board of Directors. The LRC may delegate approval of certain types and/or sizes of loans to the President/CEO, CCO and member business lending origination staff. The current Board-approved lending approval authority limits are as follows and apply only to Risk Grades 1-4 for new and/or existing members. Risk Grades higher than 4 would only be considered for existing members in some level of a workout situation, require submission to LRC for review regardless of loan size, and require final approval by either President/CEO or Chief Credit Officer.

Officer MBL Approval Authority Maximum Limit

President/CEO $500,000

Chief Credit Officer $500,000

Loan Review Committee (Quorum of 3) $1,000,000

Board of Directors > $1,000,000

These delegated approvals can be combined in any fashion by stacking upon one another. The aggregate approval requirement for each specific loan request must be supported with adequate approvals from the chart above.

The approval will be documented by using an Underwriting Summary / Approval Sheet contained within the credit memo. This approval sheet will include the final terms of the loan request and document specifics of any loan exceptions. Physical signatures will be the preferred method to document all approving authorities’ final decision. It is permissible to utilize an approval vote via email when a member of the LRC is not available and it proves difficult to obtain their physical

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signature in a timely fashion with regards to the member’s loan approval process.

2.1.H-QUALIFICATIONS OF MEMBER BUSINESS LOAN LENDING STAFF SOCU officers and employees engaged in making, underwriting, processing, approving, administering, servicing, and collecting member business loans must have the training to operate and manage a business lending department. The Loan Review Committee will be responsible for providing adequate training to all persons employed in this area. However, a minimum of two (2) years of direct experience related to member business loans is required for anyone providing member business loan underwriting or approvals. In those cases when such experience is not available internally, an outside source, such as a CUSO may be used to satisfy the regulatory requirements of direct experience, provided that its qualifications meet the approval of the Board of Directors. It is recognized that the Credit Union may utilize staff for processing and administrative needs that do not meet this experience requirement, which is deemed permissible when under the direct supervision of a qualified staff member.

Regardless of whether employees of SOCU or a CUSO provide underwriting services, the actual decision to grant a member business loan will reside with SOCU. This includes but is not limited to an employee of SOCU performing the necessary review and due diligence of the outside underwriting to ensure it meets the underwriting guidelines outlined in this policy.

2.1.I-MEMBER BUSINESS LOAN FILES A credit file shall be established and maintained for each borrower, which will include a review of the borrower’s financial condition and loan history and the LRC’s approval, documents, and correspondence, including but not limited to the following:

• Documentation establishing the authority of signors (entities)

• An underwriting summary (credit memo) which shall include the following at a minimum:

• project sources and uses detail

• historic cash flow analysis for borrower (with a desired minimum debt service coverage of 1.20X)

• cash flow analysis for related borrowers and guarantors if present

• global cash flow if multiple borrowers/guarantors

• risk grade matrix

• recommendation

• Documentation of risk rating (both initial and reviewed)

As each member business loan may be different, other documentation supporting decision reasoning, risk mitigation, and structure support may be required, but would be so required on a case-by-case basis.

Loan files pertaining to a loan and/or borrower shall, at a minimum, include the following legal documents:

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• Promissory Note

• Security Agreement and/or Mortgage (if secured)

• Personal Guaranty (if borrower is other than individual)

• Documentation of credit approval by appropriate levels of approval authority

• Collateral evaluations

• Environmental inspection information per the guidelines

• Documentation of lien perfection (if secured)

• Any required compliance related documentation such as OFAC search

• Borrowers’ most recent financial statements, cash flow statements, rent rolls, guarantor personal statements (if applicable), tax return data, and other income performance information

Depth of financial statement requirements (such as tax returns prepared by a CPA) will be based on the aggregate relationship of the member and risk of the credit. (see chart in Section 2.1.C-Aggregate Member Lending Exposure-Borrower Informational Requirements)

In addition to the above, more complex loans may require additional legal documents sufficient to perfect security interests, prohibit certain activities, or require certain performance. Said documents would be required on a case-by-case basis at the discretion of the lender/approving body.

Promissory notes, collateral documentation, and legal files in paper form shall be secured in a secure, fireproof location.

All loans to corporations or partnerships must be supported by current financial information or an application that shall contain sufficient information to support repayment of the loan. At the time of the loan approval, the type of financial information required, the frequency to be provided by the borrower, and the degree of analysis necessary will be determined. These requirements may depend on, but not limited to, the size of the loan, the type of business, source of repayment, financial condition of the business, type of loan, and complexity of business relationship.

Financial analysis of loans secured by investment real estate may include, but not be limited to, the cash flow generated by the property and the owner’s total income and personal balance sheet.

All loans to corporations, partnerships, and trusts, other than not for profit organizations as defined by the IRS Code (26 U.S.C. 501), shall be guaranteed by the principals or beneficial interests (natural person members) with ownership positions of 20% or more in most cases. If a loan is made without guarantees of all owners, the credit file is to be documented with clear and offsetting strengths to support this action and how that risk will be mitigated. Loans shall also be guaranteed by such other additional guarantors as the Loan Review Committee shall deem necessary. Notwithstanding, credit card programs offered to non-natural person members may be made available without personal guarantees.

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2.1.J-USAGE OF BUSINESS LOAN AGREEMENTS AND COVENANTS All member business loans will include a standard business loan agreement. This business loan agreement requires the member to comply with financial reporting requirements. Specifically, we ask borrowers with aggregate MBL debt of $250,000 and greater to provide on an annual basis: tax returns, rent rolls, personal financial statements, and business financial statements.

As loans become more complex and involve multiple disbursements and our aggregate lending exposure increases, the following loan covenants may be added by the recommending or approving body to the business loan agreement:

• DSCR minimum requirement covenant

• Liquidity minimum requirement covenant

• Distribution limitations or restrictions for business entities

• Monthly or quarterly reporting of inventory, A/R, and stocks/marketable securities

• Borrowing base compliance when required by loan structure

• Other custom covenants that are deemed necessary to protect the interests of the Credit Union

Member business lending originators or servicing teams will monitor covenant compliance through appropriate tracking methods and during the annual review process.

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SECTION 2.2-MEMBER BUSINESS LOAN PARTICIPATIONS

2.2.A-GENERAL INFORMATION-PARTICIPATIONS SOCU may, from time to time, participate with other financial institutions in credits that fall outside of the trade area as defined above. All loan participations, including those that involve business loans, will be done in accordance with this MBL Policy, SOCU’s Loan Participation Policy, and the requirements of Section 701.22 of NCUA Rules and Regulations. Loan participation that involve business lending must be approved by the Loan Review Committee or the President/CEO or CCO subject to their approval limits. The loan(s) must be risk graded in accordance with this MBL Policy and bear a Risk Grade of 4 or better. The LRC, President/CEO, or CCO subject to their approval limits, must approve all disbursements of funds to the originating lender, which shall be subject to the Credit Union’s internal lending limit guidelines.

Prior to the purchase or sale of a loan, Service One shall enter into a written participation agreement. The Board of Directors has delegated the execution of a participation agreement to the President/CEO. This agreement shall at a minimum include the following:

• Identify borrower, originating and participating credit unions and percentage of ownership.

• State servicing and collection responsibility and requirements;

• Provide that in the event of loss each participant shall share in the loss equal to its interest in the participation;

• Provide for the distribution of payments of principal and interest to each participant proportionate to its interest in the participation loan;

• Provide for loan status reports to each participant; and

• State the terms and conditions under which the agreement may be terminated or modified.

The aggregate total of member business loans (originated) shall not exceed 12.25% of the credit unions total assets. Participations in other credit union member business loans are not subject to this cap. The aggregate portfolio limit of originated and participated member business loans shall not exceed 15.00% of the credit union’s total assets.

2.2.B PARTICIPATION TRADE AREA The purchase of participations shall be confined to loans which are collateralized with property located in the credit unions trade area defined as Kentucky, Ohio, Indiana, Illinois, Tennessee, Virginia and West Virginia. If the borrower is not a natural person, the owners and any guarantor must have a permanent residence in the United States.

2.2.C PARTICIPATION LOAN LIMITS Individual loan participations are limited to $1 million without the consent of the Board of Directors.

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2.2.D-UNDERWRITING FOR PARTICIPATIONS Loan participations are subject to similar underwriting requirements as well as loan type requirements outlined throughout this policy. If we are not the lead lender in a participation, our underwriting and due diligence assessment should be commensurate with the risk associated with the borrower’s request as well as the complexity of the financials. We would follow in-house requirements for LTVs, terms, and other specific areas of the loan request.

2.2.E-SERVICING AND ANNUAL REVIEW PROCESS FOR PARTICIPATIONS The Credit Union will perform due diligence over the ongoing servicing at least annually and will develop trigger points for action with originators when the loans do not perform in accordance with the loan documents (i.e., missing financial statements, noncompliance to loan covenants). At times, we may need to rely upon the lead lender or CUSO to gather the financial requirements directly from the borrower(s) so that we can complete servicing or annual financial updates.

2.2.F BOARD REPORTING Credit Union management will report participation loans each month to the Board of Directors. The

report will identify at a minimum the borrower name, date of loan, maturity date, principal balance,

payment type, rate, loan rate index, collateral type, risk rating, participation principal balance,

participation original commitment, and lead credit union. Management will provide additional

reporting on a quarterly basis.

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SECTION 2.3-COLLATERAL AND SECURITY REQUIREMENTS

2.3.A-GENERAL REQUIREMENTS The following guidelines apply to all secured commercial loans:

• Collateral must be required that is commensurate with the level of risk associated with the size and type of the commercial loan.

• Collateral must be sufficient to ensure adequate loan balance protection along with the appropriate risk sharing with the borrower and principal(s).

• If making an unsecured loan, the Credit Union must determine and document in the loan file that mitigating factors sufficiently offset the relevant risk.

• While SOCU may accept collateral of all types to further secure a commercial loan, all loans should be primarily fully secured by real estate, vehicles and/or equipment.

• Every effort should be made to secure every extension of credit to the appropriate LTVs contained within this policy.

• The Credit Union may require the full and unconditional personal guarantee from the principal(s) who have a controlling interest in the borrowing entity. If a personal guarantee is not required, the Credit Union will document the loan file with mitigating factors that sufficiently offset the relevant risk.

• The aggregate of the unsecured outstanding member business loans to any one member or group of associated members does not exceed the lesser of $100,000 or 2.5% of their net worth; and

• The aggregate of all unsecured outstanding member business loans shall not exceed 10% of the Credit Union’s net worth.

Member business loans secured by automobiles, vans, pick-up trucks, and sport utility vehicles that are not part of a fleet of vehicles will be treated as consumer loans for purposes of collateral requirements.

2.3.B-MEMBER BUSINESS REAL ESTATE LOANS The following collateral requirements apply to all member business loans secured by real estate:

• Appraisals of property pledged will be done if and as required in NCUA Rules Part 722, more particularly described in the Member Business Loans Appraisal section of this MBL Policy.

• Title searches (initial and final) will be conducted indicating that a valid lien can be and was perfected and subsequent title insurance as required.

• Confirmation of adequate insurance coverage with SOCU listed as loss-payee. Generally, deductible(s) for all insurance policies are permissible up to $5,000. If the deductible(s) exceeds this level, the approving authority will document credit file with liquidity discussion to support.

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• All member business real estate loans shall be evaluated for risk of Environmental Contamination. This will follow the environmental reporting guideline section 2.3.G.

2.3.C-MEMBER CONSTRUCTION/DEVELOPMENT LOANS SOCU must ensure that collateral value associated with a construction or development loan is properly determined and established. For a construction or development loan, collateral value is the lesser of the project's cost to complete or its prospective market value.

Cost to complete means the sum of all qualifying costs necessary to complete a construction project and documented in an approved construction budget. Qualifying costs generally include on- or off-site improvements, building construction, other reasonable and customary costs paid to construct or improve a project, including general contractor's fees, and other expenses normally included in a construction contract such as bonding and contractor insurance. Qualifying costs include the value of the land, determined as the lesser of appraised market value or purchase price plus the cost of any improvements. Qualifying costs also include interest, a contingency account to fund unanticipated overruns, and other development costs such as fees and related pre-development expenses. Interest expense is a qualifying cost only to the extent it is included in the construction budget and is calculated based on the projected changes in the loan balance up to the expected “as-complete” date for owner-occupied non-income producing commercial real estate or the “as-stabilized” date for income producing real estate. Project costs for related parties, such as developer fees, leasing expenses, brokerage commissions, and management fees, are included in qualifying costs only if reasonable in comparison to the cost of similar services from a third party. Qualifying costs exclude interest or preferred returns payable to equity partners or subordinated debt holders, the developer's general corporate overhead, and selling costs to be funded out of sales proceeds such as brokerage commissions and other closing costs.

Prospective market value means the market value opinion determined by an independent appraiser in compliance with the relevant standards set forth in the Uniform Standards of Professional Appraisal Practice. Prospective value opinions are intended to reflect the current expectations and perceptions of market participants, based on available data. Two prospective value opinions may be required to reflect the time frame during which development, construction, and occupancy occur. The prospective market value “as-completed” reflects the property's market value as of the time that development is to be completed. The prospective market value “as-stabilized” reflects the property's market value as of the time the property is projected to achieve stabilized occupancy. For an income producing property, stabilized occupancy is the occupancy level that a property is expected to achieve after the property is exposed to the market for lease over a reasonable period of time and at comparable terms and conditions to other similar properties.

2.3.D-INVENTORY, ACCOUNTS RECEIVABLE AND NON-TITLED EQUIPMENT Inventory taken for security will require a written evaluation to establish the value. Consideration should be given to the quantity, quality, and perishability of the inventory. Inventory valuations can be obtained from the borrower and may be supplemented with additional valuation tools deemed necessary by SOCU. Inventory that is not complete as a result of being “work in progress” or damaged in any way may be assessed a value of zero.

• Accounts receivable taken for collateral will be valued using a current A/R Aging Report,

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which will include at a minimum names, amounts, and age of the various receivable. Anything that is >60 days or otherwise deemed uncollectable for any reason should be assessed a value of zero.

• Equipment taken for security will be documented with a written valuation to establish the value. Appropriate sources of valuation include but are not limited to:

• Cost based purchase or market valuations provided by borrower-SOCU to assure these values are realistic and reasonable

• Invoices or NADA where available

• Any other creditable and reputable valuation source including but not limited to appraisers, online resources, and other industry experts.

• Careful consideration should be exercised when taking very specialized equipment and also on equipment that may be permanently attached or is a fixture to real estate.

• A UCC search will be obtained (if applicable).

• A UCC financing statement will be filed with the Secretary of State in a timely fashion to perfect lien position

• Non-titled equipment and inventory will be evaluated at least annually upon review. In instances where accounts receivable and/or inventory are taken as collateral and serve to materially secure the debt, a valuation shall be performed at least monthly based on a borrowing base certification submitted by the borrower if the loan amount is greater than $50,000. This shall not be required in instances where accounts receivable and/or inventory are accepted as additional collateral when the loan is otherwise fully secured.

• Confirmation of adequate insurance coverage with SOCU listed as loss-payee.

2.3.E-STOCKS, BONDS, MUTUAL FUNDS, AND OTHER MARKETABLE SECURITIES • Marketable investments held as collateral shall be valued based on most recent closing

prices available from the market in which they trade. Said values can be garnered from a variety of sources including, but not limited to, The Wall Street Journal, Bloomberg, etc. The most recent member-provided quarterly statements from the brokerage/trading house would also serve as adequate documentation to support values. Such valuations shall be documented at the time of loan inception.

• Loan documentation shall include a loan covenant under which a maximum LTV not to exceed 60% shall be stipulated.

• On a quarterly basis, securities held as collateral shall be reviewed by the Credit Union to determine a current market value and subsequent LTV for the underlying debt. From time to time, the Credit Union may determine that the volatile nature of a particular investment will require more frequent review and re-evaluation.

• In the event that a periodic review results in an LTV that exceeds 60%, a margin call shall immediately be placed based on the authority granted within the loan documentation at

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inception. The borrower shall be required to immediately reduce the level of debt or pledge additional collateral to rectify the exception.

• Loans made for the purpose of buying or carrying margin stock are prohibited.

2.3.F-TITLED VEHICLES • An examination of title will be required to assure a lien perfected by SOCU will be a first

position lien.

• Adequate proof of insurance will be required listing SOCU as loss payee.

• VSI is required for all titled vehicle loans $2,500 and greater.

2.3.G-LIFE INSURANCE • In instances where the cash surrender value of the policy is relied upon to fully or partially

secure a loan, the underlying value shall be established and verified with a statement from the issuing insurance company.

• LTV shall not exceed 80%.

• In instances where an individual or individuals act as principals or otherwise in a business, where the longevity and operational integrity of the business is contingent upon and concentrated in that individual’s ongoing participation, or where the lack of continuity in management and/or abilities resulting from the unforeseen departure of that individual calls into question the ongoing ability of a business to service its debt in the future (i.e.; physician practices, law firms), life insurance on that individual in an amount sufficient to retire the related debt shall be required to protect the Credit Union from such uncertainty.

• Life insurance policies held as collateral shall be perfected as follows:

• Insured/Beneficiary shall execute an assignment of policy;

• Said assignment shall be forwarded to the home office of the insurance company; and

• Assignment shall be returned fully acknowledged by the company, recognizing said lien, and ensuring payment upon the death of the insured

2.3.H-ENVIRONMENTAL REPORTING GUIDELINES All member business loans will require careful consideration of the environmental risk associated with the collateral securing the loan request. Environmental reporting for identified high risk property types may include a SOCU environmental questionnaire, EDR report, and Phase I/Phase II reports as deemed necessary. The following table will be used as a general guideline for these requirements:

Real Estate Loan Type <$250,000 $250,001-$1,000,000 >$1,000,000

1-4 Unit Res None None Questionnaire

Multi Family Questionnaire Questionnaire & EDR Questionnaire & EDR

Low Risk Commercial- Questionnaire Questionnaire & EDR Phase I

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New Report

Elevated Risk Commercial-New

Phase 1 Phase 1 Phase I (Phase II if necessary)

Renewal-Commercial EDR Report EDR Report Phase 1 Update

SECTION 3.1-BUSINESS LOAN RISK RATING GUIDE AND LOAN PRICING

3.1.A-RISK RATING OVERVIEW Prior to its inception, each member business loan shall be risk graded to identify and quantify the level of risk posed by the extension of credit. In addition, borrowers who, in aggregate as defined in this MBL Policy, have been extended (both funded and unfunded) funds in excess of $250,000 and still carry balances in excess of $250,000 shall be reviewed and Risk Graded no less than annually to evaluate current and changing risks to the loan portfolio and to measure the current adequacy of the Loan Loss Reserve.

Loans graded Grade 1, 2, 3 and 4 for new and existing members are permitted with approval of the LRC. Member business loans to members in aggregate that exceed $3 million require approval by the Board of Directors. Loans graded Grade 5, 6, 7 or 8 require approval by President/CEO, CCO or Loan Review Committee and credit will only be extended if it is believed to add value to the overall portfolio or mitigate risk that may otherwise be realized. Member business loans Graded 5 or worse would only be considered for existing members and likely to correct an adverse situation or assist in a workout. Reasoning and approval for any such credit will be well documented. Exceptions will be reported to the Board of Directors.

3.1.B-RISK RATING MODEL The Risk Grades will be assigned using the Risk Rating Matrix (Addendum A). Variances to the final grade determined by the Risk Rating Matrix can be approved by the President/CEO or CCO. Adjustments to compensate for factors outside of the risk matrix criteria are permissible and can be assessed by the recommending authority for approval. These adjustments would be limited to 0.50 in aggregate for each separate credit request.

3.1.C-RISK RATING GRADE DEFINITIONS The following Risk Code Guide shall be used for the purpose of monitoring the amount of risk associated with the portfolio:

3.1.C-i-GRADE 1: Minimal Risk. All aspects of borrower and guarantor financial positions are very strong. Borrowers and guarantors exhibit strong credit scores averaging 800 or better. Borrower, global, and project coverage ratios are generally in excess of 2.00x. Cash flow continues to maintain an upward trend. Liquidity is strong and has the potential to cover (2) two years of outstanding debt obligations. LTV is within or below lending policy guidelines. Borrowers and guarantors have typically provided at minimum (2) two years of CPA-prepared tax returns or audited financial statements.

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3.1.C-ii-GRADE 2: Below Average Risk. As in the above, borrowers show strong financial positions with possible exceptions in some minor areas. Borrowers and guarantors exhibit strong credit scores averaging 750-799. Borrower, global, and project coverage ratios are generally between 1.75x – 1.99x. Cash flow continues to maintain an upward trend. Liquidity is strong and has the potential to cover (1) one year of outstanding debt obligations. LTV is within or below lending policy guidelines. Borrowers and guarantors have typically provided at minimum (2) two years of CPA-prepared tax returns or audited financial statements.

3.1.C-iii-GRADE 3: Average Risk. Borrowers have average financial positions and net worth. Borrowers and guarantors have credit scores averaging 700-49. Borrower, global, and project coverage ratios are generally between 1.50x – 1.74x. Cash flow may fluctuate between the years reviewed. Liquidity is average and typically covers less than (1) one year of outstanding debt obligations. LTV is within lending policy guidelines. Borrowers and guarantors have typically provided at minimum (1) one years of CPA-prepared tax returns.

3.1.C-iv-GRADE 4: Above Average Credit Risk. Borrowers have average net worth, but may have some minor deficiencies in other areas of financial condition. These deficiencies would either be considered temporary or would be normally associated with an industry or local geographic area. Borrowers and guarantors have credit scores averaging 675-699. Borrower, global, and project coverage ratios are generally between 1.25x – 1.49x. Cash flow may fluctuate between the years reviewed. Some unfavorable trends may be present. Liquidity is average or below covering about (6) six months of outstanding debt obligations. LTV is typically within or slightly above lending policy guidelines. Borrowers and guarantors have typically provided at minimum (2) two years of tax returns or company-prepared financial statements.

3.1.C-v-GRADE 5: Special Mention. Borrowers are experiencing a financial strain, and temporary delinquencies may occur. Cash flow is on a downward trend, and the threat of non-repayment is likely. Borrower, global, and project coverage ratios are slightly below to above breakeven. Liquidity is strained and meeting existing annual debt obligations may be difficult. LTV may have fallen below lending policy guidelines.

3.1.C.vi-GRADE 6: Substandard. Borrowers exhibit such financial strain that the threat of non-repayment through the normal course of business is either likely or imminent. A DSC of less than 1:1 for two of the preceding three years will be one sign of this level. Prolonged delinquencies or consistently increasing delinquencies are another signal. Borrowers will have ratios which demonstrate a severe strain on their financial conditions such as a low net worth or very high debt to worth ratio. Collateral may not be sufficient to adequately secure the Credit Union against loss. For some substandard assets the likelihood of full payment of principal and interest may be in doubt; such assets will be accorded non-accrual status.

3.1.C.vii-GRADE 7: Doubtful. An asset classified as doubtful has all of the weaknesses indicated in one classified as substandard

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with the added characteristic that the weaknesses make collection or liquidation, in full, highly questionable or improbable. This evaluation is based on current conditions and facts, but pending events may still strengthen the asset and it’s classification as a loss is deferred pending the consummation of those events. Doubtful borrowers are usually in default, and lack adequate capital and other resources necessary to continue operations. Pending events might include sale of the business assets, outside capital injections, or revaluations of collateral. Generally, pending events should be resolved within a relatively short period of time or adequate explanations provided. All doubtful assets will be accorded non-accrual status.

3.1.C.viii-GRADE 8: Loss. Assets classified as loss are considered uncollectible and of such little value that their continuance as an asset is not warranted. This classification does not necessitate the asset have no recovery or salvage value, but that it is not practical or desirable to defer writing off the asset even though a future partial recovery is possible.

3.1.D-LOAN LOSS RESERVE In general, the Risk Grades assigned to the loan portfolio will be utilized to measure and manage the existing and ongoing adequacy of the Loan Loss Reserve in relation to the member business loan portfolio.

The ALLL will be computed using a variety of factors including the Risk Grades assigned, other quantifiable factors and qualitative factors to produce an ALLL that conforms to GAAP.

3.1.E-INTEREST RATE AND FEES SOCU makes every effort to offer similar rates among comparable members. Various internal and external factors will be considered when setting individual loan prices, including but not limited to competition, degree of risk involved, levels of anticipated servicing burdens, variations in cost of funds and the ongoing management of the assets and liabilities of SOCU.

Interest rates will be determined using Prime Rate as published in the Wall Street Journal as the base rate. Using this rate, SOCU, the LRC or the Board of Directors will determine the spread (over and under) and any maximum and minimum interest rates. While final loan pricing will be made at the time of approval, in general, pricing will be based in large part on the risk associated with that credit, subject to the following pricing guideline:

Risk Grade 1-4 Case by case basis

Risk Grade 5 Base + 2.00%

Risk Grade 6 Base + 2.50%

Risk Grade 7 Base + 3.00%

Risk Grade 8 Base + 3.50%

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SECTION 3.2-LOAN MONITORING, SERVICING AND COLLECTIONS

3.2.A-ONGOING MINITORING AND SERVICING Certain member business loans will be monitored and collateral reviewed on at least an annual basis to ensure they remain in compliance with the loan terms and conditions, including in current payment status, subject to the following guidelines:

• Periodic updates of financial statements, tax return, insurance coverage, UCC filings and other documents will be properly maintained.

• Past due accounts will be promptly contacted and arrangements made to bring the account up-to-date.

• All contacts with the account will be documented in the loan file.

• Each loan file will indicate the degree and content of future financial information to be provided, as well as the frequency this information is needed.

• Loans secured by real estate will be monitored to verify payment of real estate taxes.

• Insurance coverage is required on all fixed assets securing a business loan.

• Balloon payments will be handled as described in this MBL Policy.

• Loans without balloon payments will be reviewed and risk graded no less frequently than annually if the aggregate balances exceed $250,000 and will be rated on the basis of financial analysis, payment pattern, collateral, principal reduction of the loan, etc.

• Lines of credit with committed balances, whether funded or unfunded, in excess of $100,000 shall be reviewed annually, ensuring cash flow capacity is sufficient to amortize the committed balances, whether funded or unfunded, over a reasonable timeframe relative to the expected life of the underlying collateral.

• Comment sheets will be used as deemed necessary to document contact with the borrower and other information regarding the account.

• Unless otherwise stipulated in this policy (e.g. stock loans), collateral securing business loans shall be subject to immediate internal re-evaluation in the event of any of the following:

o Credit Risk Grade downgraded to a Risk Grade 5 or higher.

o Request from borrower for additional funds (required only if the existing evaluation is more than one (1) years old)

• If no Risk Grade change has occurred or no additional funds secured by the collateral have been requested, and the borrower has paid loan payments as agreed on an amortization schedule that falls within the guidelines of this Policy, no re-evaluation is required Unless the loan is graded a 4 or below.

• Additional advances or renewals shall not be made to loans with Risk Grade 5 or higher as defined by Section 3.1.C without prior approval by President/CEO or CCO.

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Onsite visits will follow the guidelines outlined in Section 3.3.A-Annual Review Process Overview.

3.2.B-COLLECTIONS-GENERAL GUIDELINES Unless otherwise indicated, normal collections practices will be followed throughout the duration of the loan. A report of all past due business loans will be compiled monthly and provided to the Loan Review Committee. Appropriate charge-off procedures will be followed, but collections efforts will continue.

Business loan collections shall be managed and executed by the Member Business Lending staff. The following procedures will be followed:

• The CCO working with the lender shall determine, at their discretion, how and when loans less than thirty (30) days past due shall be collected upon.

• Loans 30 to 89 days delinquent shall be aggressively collected, utilizing full documentation of collection letters, threats of payment acceleration and litigation at the discretion of credit services. Regardless of loan or collateral type, the following steps should be taken at this level of delinquency:

o Immediately establish personal dialogue with the borrower to determine both intent and ability to bring current and ultimately repay debt. Any claims supporting repayment ability should be verified.

o Notify borrower in writing of possible legal action.

o Personally inspect collateral to determine current value, evaluate status of maintenance, and identify any time sensitive threats to the integrity and value.

If the borrower cannot or does not openly exhibit both intent and ability to bring the loan current in a reasonable time-frame, or there appears to be a material threat to the collateral value as a result of misuse, abuse, weathering, etc., immediate steps should be taken to secure the collateral.

3.2.C-COLLATERAL SPECIFIC COLLECTIONS Notwithstanding the above, the following procedures should be followed with regard to their specific collateral type:

3.2.C.i-REAL ESTATE An attorney should be engaged to begin the foreclosure process. Prior to accepting title, the Credit Union will verify that title is free and clear of any other encumbrances which may represent liability to the Credit Union. Additionally, the lender should inspect the property to identify any potential environmental risks that may potentially pose environmental liability. Upon securing clear title, the property will be immediately appraised by a qualified appraiser to determine market value. The loan will immediately be charged down to or below the appraised value, with the balance moved to Collateral in Process of Liquidation or a similar account (example: OREO). The real estate should then be listed with a qualified real estate agent actively engaged in real estate sales of that type within the market vicinity of the real estate.

3.2.C.ii-EQUIPMENT The Credit Union will take necessary steps to gain possession of the collateral and place in secure

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storage. In cases where needed, a court ordered removal may be necessary. Once the collateral is received, a qualified appraiser or professional with extensive knowledge and experience in the marketability of that equipment type shall be engaged to determine a market value. The loan balance will be immediately charged down to or below market value, with the balance moved to Collateral in Process of Liquidation or similar account. The equipment should then be listed through an appropriate equipment dealer or broker or sold at an auction with significant experience and following in such equipment.

3.2.C.iii-VEHICLES The vehicle will be placed for repossession by staff or a licensed repossession agent and placed in a secure location for safe storage. Based on current market information derived from NADA or Kelley Blue Book, a current value should be established. The loan balance should be immediately charged down to or below market value and moved to Collateral in Process of Liquidation or similar account. The Credit Union should apply for clear title. Once received, the vehicle may be: (1) Sold at an established automobile auction who has a history of selling similar vehicle types; (2) Sold to the highest bidder, preferably out of 3 bids, to an unrelated, disinterested party; or (3) Placed with a dealer who possesses a background in similar vehicle types, to be sold.

3.2.C.iv-INVENTORY An evaluation, including quantity and quality of the inventory should be taken. Based on any perishable attribute of the specific collateral type, careful steps should be taken to ensure that the integrity of the inventory is protected. Suppliers should be identified and contacted to explore buy-back possibilities or requirements. If the inventory must be repossessed, it should be carefully counted and taken to a secure site suitable for such inventory type. From market sources available, a market value should be established for the collateral. The loan should immediately be charged down to or below the market value, and the balance should be moved to Collateral in the Process of Liquidation or similar account. After clear ownership has been secured, the Credit Union will identify a broker/dealer with a background and experience in that inventory type, and make arrangements to liquidate it, always ensuring that a true market value has been established and was garnered for the sale.

3.2.C.v-RECEIVABLES Lender should request from the borrower a detailed current A/R Aging, including the names and addresses of the account holders. An immediate assessment should be made of the reasonable net value of the accounts by type and status. The loan should be charged down to that discounted value immediately and moved to Collateral in the Process of Liquidation or similar account. The Lender should notify in writing those account holders of a change in account owner, and direct any further payments on those accounts to be made to the Credit Union. Careful tracking should be engaged to ensure a complete understanding at all times of account balances as funds are collected. Any receivable accounts deemed in default should be aggressively collected, within economic reason.

3.2.C.vi-OTHER COLLATERAL For collateral other than those detailed above, the lender should make every effort to inspect the collateral, verify the condition, and establish a reasonable market value that reflects a reasonable sell time. The Lender will make every effort to gain control of or repossess the collateral. The loan

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balance should be charged down to or below said market value, and the collateral should be sold through a broker/dealer/auction with some expectation of reasonable exposure and demand for such an asset.

Regardless of loan or collateral type, Lender should make every effort to establish, garner and clearly document a reasonable market value for any collateral that is liquidated, preserving any subsequent pursuit of deficiency judgment.

In the event that the Borrower does adequately present a sincere intent and a legitimate plan to reasonably bring the account current, and the collateral appears to be well maintained and functioning in the normal course of business, Lender will document the plan of action and monitor the repayment progress until such time that the account is considered current.

Loans ninety (90) days and more delinquent shall be moved to non-accrual status immediately (unless fully collateralized and supported by a documented, ongoing collection plan), and shall be pursued aggressively, engaging outside legal counsel when necessary. Every attempt will be made at this point to repossess collateral and secure any form of repayment including set-off and account holds.

Notwithstanding the above, if the lender and/or Loan Review Committee, at any time, determine that any loan, while not yet at the thresholds described above, poses an obvious risk of default or exhibits an unwillingness or inability to further service said debt, they shall immediately move that loan to non-accrual status and proceed with collection/liquidation at their discretion.

Immediately upon taking possession of collateral, but prior to moving the balance to an “other asset” account, the collateral will be evaluated for current market value, if no evaluation has been completed within the prior six (6) months. Any obvious deficiency shall be immediately charged off.

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SECTION 3.3-ANNUAL REVIEW PROCESS REQUIREMENTS

3.3.A-ANNUAL REVIEW PROCESS OVERVIEW The Credit Union requires periodic updating of financial statements, tax returns, and related required loan documentation. The table below will serve to identify the exposure limits that will require an annual review. Note, these are based on borrower’s aggregate exposure including any additional MBL loans in which they may be a borrower or guarantor. If a limited guaranty exists, that proportion of the guaranty will be used to calculate the member’s aggregate exposure.

Total Aggregate Member Exposure Review Requirements

Up to $250,000 Not Required-Loan delinquencies exceeding six times in a 12-month period, failure to maintain sufficient insurance, delinquent property taxes, and any other negative occurrence could cause SOCU to conduct an annual review on accounts <$250,000. Site visits would generally not be required on accounts at this level unless deemed necessary by loan repayment issues and/or if the account becomes downgraded to a Risk Grade 5 or higher.

>$250,000 Required-Will request PFS (aged <12 months), most recent earnings available, debt schedule, updated rent roll, and credit report (<6 months) on the primary guarantors/borrowers. Covenant compliance review if applicable. Site visits are generally expected at this level, especially when collateral is anything other than 1-4 unit residential. Exterior photos to be added to file once site inspection is complete.

3.3.B-ANNUAL REVIEW IDENTIFICATION AND TRACKING The member business loan servicing staff will identify potential members with upcoming due dates for annual reviews that need to be completed. It is the desire of the Credit Union to complete annual reviews at least once during an annual calendar period. Most generally, these will be completed at least once annually for accounts Risk Graded as 1-4. An account Risk Graded 5 or worse could require more frequent updates to financials information and analysis.

A new loan request to a current member can serve as the annual review for that account subject to

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normal underwriting guidelines and requirements based on size and complexity of the member. Consideration will need to be given to the covenant compliance review and potential site visit if applicable. A report will be utilized to assist the underwriting and servicing teams in identifying members needing annual reviews completed. The report will identify loan balance, last review date, next review date, most recent site inspection date, original risk grade, previous risk grade, current risk grade, tax extension yes/no, CPA name, CPA phone number, and default rate added yes/no.

3.3.C-ANNUAL REVIEW NOTIFICATION After members have been identified as requiring an annual review, it will be the Credit Union’s ongoing practice to request updated financial information from the borrower. A series of communications will be provided to the borrower commensurate with their annual review due date.

• First contact attempt-Sent upon identification of annual review date requesting updated financial statements, income taxes, debt schedules, rent rolls.

• Second contact attempt-Sent approximately 30 days after first letter with similar informational requests.

• Third contact attempt-Sent approximately 60 days after first letter with similar informational requests and informing borrower of interest rate acceleration if financial information is not provided in the next 30 days.

Lenders will ensure the most appropriate combination of communications to members including but not limited to snail mail, email, and phone call follow ups to obtain the required information for completing annual reviews. If borrowers are unresponsive to letters or emails, a phone call is deemed prudent to explain the importance of these reviews.

3.3.D-ANNUAL REVIEW UNDERWRITING Annual reviews will follow a similar process to regular underwriting to update the member business loan file with:

• Analyze updated PFS and complete trend analysis to prior PFS if available

• Analyze updated personal/global cash flow analysis and complete trend analysis of prior DSCR if available

• Analyze updated rent roll and debt schedule when available to update portfolio and project DSCR

• Pull new credit report if one doesn’t exist in file that is <12 months old

• Complete risk rating matrix based on updated analysis

3.3.E-ANNUAL REVIEW RISK RATING GUIDANCE Upon completing the annual financial update, the underwriting team will place the member financial information into the most appropriate Risk Rating Matrix for the loan type. Underwriting and servicing teams will then update corresponding core systems to ensure accurate and timely risk rating of the portfolio. Reporting will be in place to monitor the progress of these tasks.

All downgrades will be reported at the next quarterly LRC Meeting. If during the annual review

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process of a loan Risk Graded 5 or worse, it is determined that the credit factors support an upgrade, this will be submitted through the same approval process channel as a new credit request to evaluate the potential for the Risk Grading upgrade.

3.3.F-ANNUAL REVIEW NON-COMPLIANCE If a member fails to provide the requested documents needed for the annual review, the default rate will apply. For loans Risk Graded 1-4, the loan will be downgraded by a single risk grade. For loans risk rated 5 or greater, an account review will be performed to determine whether the existing risk grade remains appropriate. No new loan requests will be entertained for these members until all the requested documentation is received.

Exceptions to documentation requirements can be granted on a case by case basis when approved by the President/CEO or CCO. An example would be a member that fails to provide an updated Personal Financial Statement. In this case, we would complete the Annual Review without this document, but the risk grade would not be negatively impacted by the failure to provide.

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SECTION 4.1-MEMBER BUSINESS LOAN APPRAISALS

4.1.A-APPRAISAL-GENERAL Internal procedures have been established to address associated risks with property valuation. These procedures include minimum standards for an effective real estate appraisal and evaluation program, including selecting individuals who may perform appraisals or evaluations and selection criteria to provide for the independence and competence of the individual performing the appraisal or evaluation.

4.1.B-NON-REAL ESTATE COLLATERAL When considering non-real estate collateral as security for a member business loan, SOCU must make every effort to establish a current and accurate value of the collateral to support the level of funding proposed within a loan request. In cases where the subject collateral is comprised of fixed assets and represents security for a loan or a portion of a loan intended for business purposes, SOCU will engage an unrelated third party to assess the value of the collateral. In cases where the subject collateral is comprised of assets not considered fixed, documentation detailing the current level and cost or book value of the asset will be utilized to establish and support collateral value.

Appraisers used by SOCU must possess extensive experience in the subject collateral type, have knowledge of the market in which the collateral is located and be entirely independent of the transaction and proposed borrower. The appraiser should be engaged directly by SOCU and should be instructed to submit a written valuation of the collateral that includes a reasonable timeframe for marketability. The report should also include documentation of the appraiser’s qualifications, including State licensing or certification, and competency specific to the asset for which he/she is being retained to appraise.

4.1.C-COMMERCIAL REAL ESTATE COLLATERAL Appraisers of commercial real estate will use the Uniform Standards of Professional Appraisal Practice in determining market value and will document the results of the appraisal on the Uniform Residential Appraisal Report. In an effort to derive an accurate value, the following shall serve as guidelines for the appraisals:

• The valuation must be written;

• It must include a copy of the written engagement of the institution;

• It must identify the appraiser;

• It must clearly document and disclose the competency of the appraiser as it pertains to the particular assignment for which they are being considered;

• It must describe the property accurately and specifically;

• It must describe the sources of supportive information; and

• It must provide a numeric value of the property.

With all of the above in mind, for residential real estate loans originated by the Credit Union without the use of a CUSO, the appraiser must be chosen from a list of appraisers approved by the Loan

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Review Committee. Notwithstanding, the appraiser chosen shall be independent of the transaction as proposed and must provide an unbiased appraisal prior to the disbursement of funds. The usage of exterior only inspections will be limited to 1-2-unit residential rental collateral, with values not to exceed $175,000. Exceptions to this amount can be considered only by the President/CEO or CCO.

Any loan secured by real estate that is extended by SOCU shall require an appraisal by a qualified appraiser as defined in the NCUA Rules and Regulations Part 722.3(a) except as follows:

• Underlying real estate was taken only through an abundance of caution

• A lien was taken for reasons other than its value

• A waiver is granted by the NCUA, if required (member business loans)

Furthermore, a State-Certified appraiser shall be required based on size or complexity, as defined by NCUA Rules and Regulations Part 722.3(b), including the following:

• Transactions of $1 million or more

• Non-residential transaction of $250,000 or more

• Complex residential transactions of $250,000 or more

Single items of real estate securing balances in excess of $1 million shall be appraised by those appraisers who satisfy all of the above requirements and who have secured MAI designation.

When appraisals are required for a member business loan, it will be the practice of SOCU to perform an independent appraisal review of the report for any appraisals completed for an extension of credit. Whenever possible, the reviewer must be independent of the loan approval decision and qualified to perform an appraisal review. If there is not a qualified staff member available or if the Credit Union so chooses, they may elect to have this review performed by an independent third party. This independent third party could be a CUSO or another qualified external reviewer that is able to perform these reviews.

In general, appraisals shall be deemed as adequate if they were issued to any financial institution, including SOCU, within a period of one hundred eighty (180) days prior to loan closing. Any such appraisals, however, are subject to this MBL Policy in its entirety. Any exceptions to these rules must be approved by the President/CEO or CCO. The appraiser, the appraisal and any subsequent review must conform to the procedures laid out in this policy. In instances where appraisals were originally issued to other financial institutions, the Lender should take every precaution to ensure that appraiser independence was observed through the original valuation process, and that any material aspects of the appraisal have not obviously and substantially changed over time.

In no event shall SOCU accept an appraisal that was ordered or directed by the borrower. Additionally, in no case shall an appraisal be ordered at the direction borrower or related party. This prohibition includes any influence from the borrower related to an appraiser who is listed on the approved appraiser list.

After an appraisal is received or an evaluation is prepared, and prior to loan closing, every appraisal or evaluation shall be reviewed to ensure that all of the above, as well as generally accepted industry

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standards were met in the body of the appraisal. Appraisals and evaluations shall be reviewed by a separate party, either within the organization, a qualified third party or a CUSO to ensure compliance. Said reviewer shall possess the requisite education, expertise, and competence to perform the review commensurate with the complexity of that transaction, as is reasonably available within either organization. Furthermore, the Lender should abstain from any approval involving loans for which they performed the appraisal, evaluation or review.

Regardless of collateral type, an appraisal and subsequent Loan to Value shall adhere to the NCUA Rules and Regulations Part 722. Any violation of current law or regulation is in no way constructive and shall be strictly prohibited.

In instances where the Lender wishes to extend a loan where an existing appraisal was deemed to be accurate and conforming to this MBL Policy, the Lender may waive the requirement for a new appraisal if no new monies are being advanced. Lender should keep in mind the expected average life of the underlying collateral, particularly in how it relates to the appraiser’s final valuation, when making such a decision, making every effort to avoid extending the ultimate repayment of debt beyond the original appraisers expectation of collateral life and sustainable value. When making a decision to waive, the Lender should make inspection of the property to verify that there has been no significant deterioration in property value resulting from property condition and maintenance, or significant changes in market condition.

4.1.D-FLOOD HAZARD DETERMINATION SOCU will not make, increase, or renew any loan secured by property (building) unless a current standard flood hazard determination form has been received for the property. If the property is located in a special flood hazard area and the community in which the property is located participates in the National Flood Insurance Program, flood insurance will be required for the term of the loan. The amount of insurance must be at least the lesser of the outstanding principal balance of the loan or the maximum limit of coverage available for the property under the National Flood Insurance Act. Flood insurance coverage will be limited to the overall value of the property minus the value of the land on which the property is located.

4.1.E-BALLOON REVIEW SYSTEM The following standards apply for all member business loans with balloon payments.

• If there has been no credit rating run within the last (6) six months, a new credit rating will be done.

• If our lien is a subordinate mortgage, the first mortgage balance shall be verified.

• The file will be reviewed to insure that insurance, real estate taxes, and financial records are current.

• Any deficiencies in these areas will be noted and steps taken to correct them prior to the loan being renewed.

• A letter will be sent out 45 days before the balloon date, which shall include a description of the loan, the documents needed to evaluate the loan for rewrite, the balloon date, who to contact at SOCU to discuss renewal options and an instruction to the borrower to

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contact SOCU at least 30 days before the balloon payment date.

When this information is received, it will be evaluated and checked for compliance with our current lending policy, a financial analysis will be conducted and the credit rating and payment history will be reviewed. If not reviewed and Risk Rated utilizing the most up to date set of financial information, the credit will be Risk Rated in accordance with this MBL Policy.

An inspection of appraisal by a licensed appraiser or an inspection by an officer of SOCU may be required if our most recent appraisal is over two years old and new money is advanced; or if the LRC deems it necessary. The Underwriting Manager will determine the type of appraisal or inspection needed based on several factors to include, but not be limited to amount of the loan, the type of loan, loan-to-value and payment.

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SECTION 5.1-OVERSIGHT, REVIEW, EXCEPTIONS, AND RISK MANAGEMENT

5.1.A-OVERSIGHT BY BOARD OF DIRECTORS This MBL Policy will be reviewed annually and may be amended at any time by the Board of Directors. The Board of Directors has ultimate responsibility for the level of risk assumed by the Credit Union. The Board of Directors will approve the overall business lending strategy that addresses the level and nature of exposure acceptable to the Credit Union. This will include evaluating resources and staffing levels that are appropriate for the level of complexity of the portfolio, understanding and remaining informed on the level of risk in the Credit Union’s portfolio and establishing a suitable pricing model that integrates the Credit Union’s overall asset liability management program.

5.1.B-MANAGEMENT RESPONSIBILITY AND OVERSIGHT The President/CEO and Chief Credit Officer will be responsible for the following:

• Implementing procedures and controls to effectively adhere to and monitor compliance with established lending policies and strategies;

• Periodically reviewing information that identifies and quantifies the nature and level of risk based on the Credit Union’s activities and borrowing relationships;

• Adjusting strategies and policies to respond to changes in market conditions;

• Quarterly reporting information to the Board including but not limited to the following:

o Overall risk rating segments of total MBL portfolio

o MBL loan growth and trends

o Loans approved with policy exceptions

o Delinquency and charge-off trends

o Workouts, modifications, TDRs

o Troubled loan reports or watch lists

o Commercial loans approved and denied

o Annual review updates

o Loans made outside of the trade area

o Compliance with all established policy limits for loan types, industry types, and unsecured lending

o Program profitability

o Loan Review Committee meeting minutes

• Obtaining updated appraisals or collateral valuation when a loan or project is impaired or when market conditions are deemed to have deteriorated;

• Regularly evaluating the degree of correlation between related business sectors and

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establishing internal lending guidelines and concentration limits to control the Credit Union’s overall risk exposure; and

• Developing appropriate strategies for managing concentration levels by identifying specific adverse market conditions and creating feasible contingency plans to reduce or mitigate concentrations such as loan participations and whole loan sales.

5.1.C-EXCEPTIONS REPORTING AND TRACKING SOCU will develop a process to identify, report and monitor loans approved as exceptions to the Credit Union’s loan policy. Except where otherwise noted throughout this MBL policy, all exceptions to must be approved by the President/CEO or CCO and will be monitored accordingly.

Specifically, the loan exceptions will be tracked with a reporting mechanism to ensure timely identification and appropriate approval by President/CEO or CCO in addition to being captured in the credit approval memo at the time of underwriting. They will be reported to the LRC at the next scheduled meeting. SOCU has developed a target that no more than 20% of the total MBL portfolio (by volume) should contain a policy exception. Ongoing monitoring will continue for loans identified as having exceptions to ensure satisfactory performance and to assure proper credit administration. Exceptions to this MBL Policy and the overall percentage of portfolio with exceptions will be reported to the Board at the next regularly scheduled board meeting.

5.1.D-PORTFOLIO STRESS TESTING AND SENSIVITY ANALYSIS The Credit Union will perform portfolio level stress tests or sensitivity analysis to quantify the impact of changing economic conditions on asset quality, earnings and net worth. The Credit Union will also consider the sensitivity of portfolio segments with common risk characteristics to potential market conditions (e.g., loan type, collateral, geographic area, individual or associational group of borrowers, business lines, etc.).

5.1.E-CREDIT RISK ASSESSMENT The Credit Union will perform a credit risk assessment to identify potential concentrations by stratifying the portfolio into segments that have common risk characteristics or sensitivities to economic, financial or business developments. Concentrations will be by loan type, industry, collateral, geographic area, individual or associational group of borrowers, business lines, etc.

The Credit Union will establish a formal process that identifies and assigns a credit risk score to each commercial loan at inception and in portfolio. The Risk Rating Matrix score will be determined through an evaluation of quantitative factors based on financial performance and qualitative factors based on management, operational, market, and business environment. Risk ratings will be reviewed as necessary to ensure proper risk monitoring.

5.1.F-MARKET ANALYSIS The Credit Union will periodically perform a market analysis for the various types of loans and geographic areas represented in the Credit Union’s portfolio. The Credit Union will also perform a market analysis prior to entering new markets, pursuing new lending activities, and/or expanding into existing markets. The Credit Union will obtain market information from sources such as: published research data, real estate appraisers and agents, information maintained by the property taxing authority, local contractors, builders, investors, and community development groups.

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APPENDIX A-RISK GRADING MATRIX

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Business VISA ProgramEffective 05/01/2020

Program Setup Business VISA Pricing GuidelinesProgram VISA Business Risk Grade Score Index Prime RateBIN 403835 A+ ≥ 730 7.00% 4.75% 11.75%SYS 3440 A 700-729 8.00% 4.75% 12.75%Prin 0000 B 660-699 9.00% 4.75% 13.75%Agent 0000

Required DocumentsTerms and Conditions Business Credit Card and Loan ApplicationMinimum Credit Limit $3,500 Business Credit Card AgreementMaximum Credit Limit $25,000 Business Credit Card AddendumMonthly Payment 2% of BalanceMinimum Payment $25 Other Conditions

Primary owner 660 scoreFees 2 years length of time in business preferredLate Fee $20Grace Period for Late Fees 5 DaysAnnual Fee $0Over Limit Fee $0Foreign Transaction Fee 1.00%Returned Payment Fee $30Cash Advance Fee 3.00%Cash Advance Fee Minimum $10Cash Advance Fee Maximum $500Balance Transfer Fee $0

Rate TermsPricing Variable / Prime + IndexIndex Change Date 1st of December / AnnuallyMax Rate 24.00%

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Loan Types Maximum % of Net Worth

Maximum $ of Net Worth

Actual $ Current % of Net Worth

$ Over/Under Concentration Limit

Policy Change03/31/2020

Member Business Loans 175% 35,704,761$ 797,867$ 3.91% (34,906,895)$ No ChangeCommercial Real Estate 100% 20,402,721$ -$ 0.00% (20,402,721)$ No ChangeSingle Family Residence (Investment Purpose) 25% 5,100,680$ 332,061$ 1.63% (4,768,619)$ NEWTerm Loans Secured by Vehicles/Equipment 20% 4,080,544$ 382,646$ 1.88% (3,697,898)$ No ChangeConstruction and Development Loans 15% 3,060,408$ -$ 0.00% (3,060,408)$ No ChangeLines of Credit - Real Estate Secured 15% 3,060,408$ -$ 0.00% (3,060,408)$ No ChangeLines of Credit - Not Real Estate Secured 5% 1,020,136$ -$ 0.00% (1,020,136)$ No ChangeUnsecured Loans 10% 2,040,272$ 83,160$ 0.41% (1,957,113)$ No ChangeBusiness Credit Cards 20% 4,080,544$ -$ 0.00% (4,080,544)$ NEW

MBL Industry Concentration LimitsManufacturing 65% 13,261,768$ -$ 0.00% (13,261,768)$ No ChangeRetail/Wholesale 65% 13,261,768$ 354,214$ 1.74% (12,907,555)$ No ChangeTransportation 15% 3,060,408$ -$ 0.00% (3,060,408)$ No ChangeReal Estate Related Industries 100% 20,402,721$ 332,061$ 1.63% (20,070,659)$ No ChangeHospitality 15% 3,060,408$ 28,432$ 0.14% (3,031,976)$ No ChangeHealth and Social Related Industries 50% 10,201,360$ 83,160$ 0.41% (10,118,201)$ No ChangeWarehousing (including self and mini warehouse) 10% 2,040,272$ -$ 0.00% (2,040,272)$ No Change

MBL Limits to One Member - Portfolio or ParticipationMBL Aggregate Limit to a Single Borrower 10% 2,040,272$ NA NA NA No ChangeMBL Aggregate to a Member or Group of Associated Members (1) 15% 3,060,408$ NA NA NA No ChangeMBL Unsecured Limit to a Member or Group of Associated Members (1) No Change

Participations - Commercial Loans 200% 40,805,442$ 29,333,701$ 143.77% (11,471,741)$ No ChangeCommercial Real Estate 175% 35,704,761$ 20,959,788$ 102.73% (14,744,973)$ No ChangeConstruction and Development Loans 75% 15,302,041$ 5,592,371$ 27.41% (9,709,670)$ No ChangeNon Real Estate, Not Construction or Development 50% 10,201,360$ 19,967$ 0.10% (10,181,393)$ No Change

Total Assets 181,686,237$ Total Liabilities 161,266,893$ Accumulated Other Gain or Loss 16,623$ Net Worth 20,402,721$ Net Worth = Assets - Liabilities - Accumulated Other Comprehensive Gain or Loss

NotesPool balances = Actual Balance + Unfunded Commitments

Concentration Risk LimitsMarch 31, 2020

$100,000 Aggregate

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Factor Type Risk Considerations Supporting Data Change fromPrior Period

PriorAdjustment

CurrentAdjustment

OverallAdjustment

Comments Regarding Current Period Changes

SOCU Factor

Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses

• Have policies changed in a way that will affect the collectability of the portfolio• Have there been changes to underwriting standards or collection practices?

• % Underwritten w/policy exceptions• Changes in loan policy or underwriting process?

Slight Increase in Risk 0.10 0.10 0.10 • No significant changes in policy

SOCU FactorChanges in the experience, ability and depth of lending management and other relevant staff

• Any turnover of relevant staff?• Changes in average tenure?

• Turnovers• Average tenure

Slight Decrease in Risk 0.08 0.05 0.05

• No Senior Management turnover for Q1 2020; have added experience and depth to UW and increased oversight by Loan Review Committee and formed a new Charge Off Review Committee • Staffing reduction in collections department and using non-collection department associates for early stage collections and bankruptcy processing

SOCU FactorChanges in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified loans

• Has the trend in past due, nonaccrual or substandard loans improved or worsened?

• Past Due/Total Loans Ratio• Nonaccrual Trends

Slight Increase in Risk 0.00 0.05 0.05• DQ has slightly increased over prior quarters and level of charge offs is increasing • Given the COVID-19 shutdowns, SOCU expects reportable DQ to rise in Q2 and Q3 2020• Non-accrual tracking began in March 2020 with core conversion

SOCU FactorChanges in the quality of the institution’s loan review system

• Has the review process changed?• Has there been turnover in the review team?

• Number and trend of deficiencies & exceptions• Turnover rate

Slight Decrease in Risk 0.00 0.00 0.00• No changes in the loan review system. Exceptions and document deficiencies trended downward 4 consecutive quarters

SOCU Factor

The effect of other external factors such as competition, legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio

• Change in competitive landscape?• New laws or regs that change collectability?

• Competition affecting pricing or lending standards?• New laws or regs?

No Change in Risk 0.00 0.00 0.00

• Competition remains strong with lower & below market interest rates offered by banks & credit unions. Two new credit unions have entered the local market in the prior 18 months.• No new laws or regs changed Quarter to Quarter other than temporary easing related to COVID-19.

Portfolio FactorThe existence and effect of any concentration of credit, and changes in the level of such concentrations

• What concentrations exist in the Credit Unions portfolio?

• Concentration by geographical area, collateral type and industry

No Change in Risk 0.00 0.00 0.00• No significant changes in policy or concentrations• Credit Union developed a quarterly concentration tracking worksheet to better manage concentration risk

Portfolio Factor

Changes in national, regional and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments

• Are national economic trends improving or deteriorating? • How about local or industry trends?

• National economic trends• Local market trends where concentrations are the highest• Industry or property specific trends

Slight Increase in Risk 0.09 0.10 0.10• COVID-19 related unemployment and business closures may affect the portfolio long term collectibility

Portfolio FactorChanges in the nature and volume of the portfolio and in the terms of loans

• Has the portfolio changed in a way that would affect risk?• Has lending commenced or ramped up in riskier areas?

• New loan products or new lending areas with no loss history• Abundance of maturing loans

No Change in Risk 0.00 0.00 0.00• No significant changes in new lending areas • New business VISA product roll out 05/01/2020 • Increase in deferrals and modifications due to COVID-19

Portfolio FactorChanges in the value of underlying collateral for collateral-dependent loans

• How are RE values trending in areas of concentration?

• Collateral value trends 0.00 0.00 0.00 • No known change in underlying collateral values

Total 0.27 0.30 0.30

Significant Decrease in Risk -0.10Slight Decrease in Risk -0.05No Change in Risk 0.00Slight Increase in Risk 0.05Significant Increase in Risk 0.10

Environmental Factors Scale

Environmental/Qualitative Factors Scoring MatrixMay 1, 2020

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Date: April 24, 2020

To: Board of Directors From: Michelle Dyer, Justin Morris, and Rebecca Stone RE: 401k Investment Policy Statement, Appointment and Removal of Trustees for SOCU 401k plan

Upon advisement of Jim Kirkpatrick, our Retirement Relationship Manager with CUNA Mutual Group, and to demonstrate due diligence to meet our fiduciary responsibilities we are proposing that the attached Service One Credit Union Investment Policy Statement become part of our 401k plan documents.

We are also proposing to make changes to our trustees for our 401k plan by removing C. Richard Aldridge and adding Justin Morris and Michelle Dyer as plan trustees. Upon approval the Summary of Material Modifications will be attached to our summary plan description and a copy of the SMM will be distributed to participants and beneficiaries within the required timeframe.

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SERVICE ONE CREDIT UNION, INC. INVESTMENT POLICY STATEMENT

401(K) PLAN

Part I. The Plan Service One Credit Union, Inc. sponsors the Service One Credit Union, Inc. 401(k) Plan & Trust (the Plan) for the exclusive benefit of its eligible and participating employees, inclusive of spouses or other beneficiaries of participating employees. The Plan is intended to provide eligible employees with a retirement income based upon the long-term accumulation of retirement assets via a combination of employee and employer contributions to individual participant accounts, with any earnings or losses thereon, drawn down over the life expectancy of the employee or in such other manner as the Plan allows and the employee elects. The Plan is a qualified employee benefit plan intended to comply with all applicable federal laws and regulations, including the Internal Revenue Code of 1986, as amended, and the Employee Retirement Income Security Act of 1974 (ERISA), as amended. New employees will be automatically enrolled into the Plan. To meet the investment needs of automatically enrolled employees and their beneficiaries, deferrals (Optional: and account balances) will be directed to a Qualified Default Investment Alternative (QDIA) consistent with provisions of ERISA §404(c)(5) and regulations thereunder. In anticipation of a case where plan participants or beneficiaries are eligible for plan benefits but have not made an affirmative investment election, the Plan will establish and direct those assets to a Qualified Default Investment Alternative (QDIA) consistent with provisions of ERISA § 404(c)(5) and regulations thereunder. Participants may opt out of enrollment entirely, or may establish participation via the self-direction provisions of the Plan. The Plan’s participants are expected to have different investment objectives, time horizons and risk tolerances. To meet these varying investment needs, participants and beneficiaries will be able to direct their account balances among a range of investment options to construct diversified portfolios that reasonably span the risk/return spectrum. Participants and beneficiaries alone bear the risk of investment results from the options and assets mixes that they select. Part II. The Purpose of the Investment Policy Statement This investment policy statement is intended to assist the Plan’s fiduciaries by ensuring that they make investment-related decisions in a prudent manner. It outlines the underlying philosophies and processes for the selection, monitoring and evaluation of the investment options and investment managers utilized by the Plan. Specifically, this Investment Policy Statement: • Defines the Plan’s investment objectives • Defines the roles of those responsible for the Plan’s investments • Describes the criteria and procedures for selecting investment options and investment managers • Establishes investment procedures, measurement standards and monitoring procedures • Describes ways to address investment options and investment managers that fail to satisfy established objectives • Provides appropriate diversification within investment vehicles

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Part III. Investment Objectives The Plan’s investment options will be selected to: • Pursue maximum return relative to reasonable and prudent levels of risk • Provide competitive returns relative to similar investment options • Provide exposure to a wide range of investment opportunities in various asset classes • Maintain reasonable administrative and management costs in light of plan and participant services provided A Qualified Default Investment Alternative will be selected in a manner consistent with provisions of the ERISA §404(c)(5) and regulations thereunder. Part IV. Roles and Responsibilities Those responsible for the management and administration of the Plan’s investments include, but are not limited to: Service One Credit Union, Inc. – Responsible for selecting the trustee(s), hiring the record keeper and/or investment advisory consultants. Service One Credit Union, Inc. is also responsible for: • Establishing and maintaining the Investment Policy Statement • Selecting investment options • Periodically evaluating the Plan’s investment performance and recommending investment option changes • Providing Plan participant investment education and communication Plan trustee(s) – Responsible for holding and investing plan assets in accordance with the terms of the Trust Agreement. Investment managers – Responsible for making reasonable investment decisions consistent with a prospectus or other disclosure documents provided to the Plan from time-to-time and reporting investment results on a regular basis as required by applicable rules and regulations or otherwise responsive to the Plan fiduciaries’ reasonable request. Record keeper – Responsible for maintaining and updating individual account balances as well as information regarding plan contributions, withdrawals and distributions. Part V. Selection of Investments and Managers The selection of investment options offered under the Plan is among the Service One Credit Union, Inc.’s most important Plan responsibilities. Set forth below are the considerations and guidelines employed in fulfilling this fiduciary responsibility. The Plan intends to provide an appropriate range of investment options that will span the risk/return spectrum. Further, the Plan investment options will allow Plan participants who opt out of automatic enrollment or who would rather construct their own portfolios consistent with their unique individual circumstances, goals, time horizons and tolerance for risk. Major asset classes to be offered shall include, but are not be limited to:

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Core Asset Classes Benchmark(s) Stable Value N/A Intermediate Investment Grade Bonds Barclay’s Capital Aggregate Bond Index High Yield Bonds Barclay’s Capital High Yield Bond Index U.S. Large-Cap Stocks S&P 500 / Russell 1000 (Growth, Value) U.S. Mid-Cap Stocks S&P 400 / Russell Mid-cap (Growth, Value) International Developed Markets Stocks MSCI Europe, Australia & Far East Index (EAFE) Emerging Markets Stocks MSCI Emerging Markets Index

Optional Satellite Asset Classes Benchmark(s)

U.S. Small Cap Stocks S&P 600 / Russell 2000 REIT MSCI REIT Index Inflation Protected Bonds Barclay’s Capital U.S. TIPS Index Global Bonds Citigroup World Bond Index Global Stocks MSCI World Index

After determining the asset classes to be used, Service One Credit Union, Inc. must evaluate investment managers and choose managers for the specific investment options. Each investment manager must meet certain minimum criteria:

1. It should be an insurance company, investment management company, or an investment adviser under the Registered Investment Advisers Act of 1940. 2. It should be operating in good standing with regulators and clients, with no material pending or concluded legal actions. 3. By furnishing a prospectus, statement of additional information or other disclosure document, it should provide detailed additional information on the history of the firm, its investment philosophy and approach, and its principals, clients, locations, fee schedules and other relevant information.

Assuming the minimum criteria are met, the particular investment under consideration should meet the following standards for selection:

a) Performance should be in line with the median return for an appropriate, style-specific benchmark and peer group over a specified time period. b) Specific risk and risk-adjusted return measures should be established and agreed to by Service One Credit Union, Inc. and be within a reasonable range relative to an appropriate, style-specific benchmark and peer group. c) It should demonstrate adherence to the stated investment objective. d) Fees should be competitive compared to similar investments taking into consideration services furnished to the Plan and/or participants. e) The investment manager should be able to provide all performance, holdings, and other relevant information in a timely fashion, with specified frequency, consistent with applicable rules and regulations such as Department of Insurance or Financial Industry Regulatory Authority (FINRA) other applicable regulatory and self-regulatory entities.

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The Plan also intends to provide broadly diversified age-based and / or target-risk-based investment options that serve as QDIAs for employees who have not made investment elections or are automatically enrolled in the Plan. Those investment options will also be available to employees who opt out of automatic enrollment and choose investments in a self-directed manner. The aforementioned selection criteria also apply to these investment options. Part VI. Investment Monitoring and Reporting The on-going monitoring of investments must be a regular and disciplined process. It is the mechanism for revisiting the investment option selection process and confirming that the criteria originally satisfied remain so and that an investment option continues to be a valid offering. While frequent change is neither expected nor desirable, the process of monitoring investment performance relative to specified guidelines is an on-going process. Monitoring should occur on a regular basis and utilize the same criteria that the basis of the investment selection decision. It will include a formal review at least annually. Further, unusual, notable or extraordinary events should be communicated by the investment manager immediately to Service One Credit Union, Inc. consistent with applicable rules and regulations. Examples of such events include portfolio manager or team departure, violation of investment guidelines, material litigation against the firm or materials changes in firm ownership structure or announcements thereof. If overall satisfaction with the investment option is acceptable, no further action is required. If dissatisfaction exists, the investment manager and Service One Credit Union, Inc. must take steps to remedy the deficiency. If over a reasonable period the manager is unable to resolve the issue, termination may result. Part VII. Manager Termination An investment manager should be terminated when Service One Credit Union, Inc. has lost confidence in the manager’s ability to: • Achieve performance and risk objective • Comply with investment guidelines • Comply with reporting requirements • Maintain a stable organization and retain key relevant investment professionals • (Optional for QDIAs),Meet applicable provisions of ERISA § 404(c)(5) and regulations thereunder There are no hard and fast rules for manager termination. However, if the investment manager has consistently failed to adhere to one or more of the above conditions, it is reasonable to presume a lack of adherence going forward. Failure to remedy the circumstances of unsatisfactory performance by the investment manager, within a reasonable time, shall be grounds for termination. Any recommendation to terminate an investment manager will be treated on an individual basis, and will not be made solely based on quantitative data. In addition to those above, other factors may include professional or client turnover, or material change to investment process. Considerable judgment must be exercised in the termination decision process. A manager to be terminated shall be removed using one of the following approaches: • Remove and replace (map assets) with an alternative manager • Freeze the assets managed by the terminated manager and direct new assets to a replacement manager • Phase out the manager over a specific time period • Continue the manager but add a competing manager • Remove the manager and do not provide a replacement manager

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Replacement of a terminated manager would follow the criteria outlined in Part V, Selection of Investment & Managers. Part VIII. Participant Education and Communication Consistent with applicable rules and regulations, the Plan will communicate to employees if they have been automatically enrolled in the Plan, the amount of their salary deferral and which investments serve as their QDIA. Employees who opt out of automatic enrollment will be informed that they control their own investments and may make daily investment changes, if they choose. The Plan will provide effective educational materials allowing those employees to make informed decisions. Part IX. Coordination with the Plan Document Not withstanding the foregoing, if any term or condition or this investment policy conflicts with any term or condition in the Plan, the terms and conditions of the Plan shall control. This Investment Policy Statement will be reviewed at least annually and, if appropriate, can be amended to reflect changes in the capital markets, plan participant objectives or other factors relevant to the Plan. This Investment Policy Statement shall not be changed without the prior written approval of the Board of Trustees. By :______________________________________________ Date :______________________________ Chairman By : _____________________________________________ Date :______________________________ Secretary

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87

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First Name Last Name Eligibility Branch Name DAKOTA JUSTIS CITY OF BOWLING GREEN By-PassAnthony Wilson LWW-BRADD AREA By-PassSHON DEAN LWW-BRADD AREA By-PassTommy Dorman LWW-BRADD AREA By-PassDAWSON HENDRICK LWW-BRADD AREA By-PassBRETT JACKSON LWW-BRADD AREA By-PassAntonio Speed LWW-BRADD AREA By-PassRomella Yavrian LWW-BRADD AREA Campbell LaneBrandy Wilson LWW-BRADD AREA Campbell LaneZachary White LWW-BRADD AREA Campbell LaneWilliam Bates LWW-BRADD AREA Campbell LaneJonae'a Blissett LWW-BRADD AREA Campbell LaneStephanie Brino LWW-BRADD AREA Campbell LaneJennifer Brooks LWW-BRADD AREA Campbell LaneRobert Bunton LWW-BRADD AREA Campbell LaneChandler Decker LWW-BRADD AREA Campbell LaneEric Eastman LWW-BRADD AREA Campbell LaneALEXIS FANCHER LWW-BRADD AREA Campbell LaneEVELINE FISHER LWW-BRADD AREA Campbell LaneJuan Gonzalez LWW-BRADD AREA Campbell LaneJonah Harper LWW-BRADD AREA Campbell LaneChristopher Hawks LWW-BRADD AREA Campbell LaneMarisa Higgs LWW-BRADD AREA Campbell LaneLevi Howell LWW-BRADD AREA Campbell LaneAMANDA KNIGHT LWW-BRADD AREA Campbell LaneSHEILA MCIVOR LWW-BRADD AREA Campbell LaneALDIN MUJEZINOVIC LWW-BRADD AREA Campbell LaneAdele McGuire LWW-BRADD AREA Campbell LaneTravis Pearson LWW-BRADD AREA Campbell LanePah Reh LWW-BRADD AREA Campbell LaneSHAWNTAY SMITH LWW-BRADD AREA Campbell LaneSamuel Towe LWW-BRADD AREA Campbell LaneSAMUEL WADE LWW-BRADD AREA Campbell LaneJESSICA WHITE LWW-BRADD AREA Campbell LaneGlenna Scruggs VENTRA PLASTICS Campbell LaneMyrycal Reed WBKO Campbell LaneWilliam Lewis WKU ALUMNI Campbell LaneBOBBIE STAGNER WKU EMPLOYEE Campbell LaneJustice Nichols WKU STUDENT Campbell LaneGinger Angell LWW-BRADD AREA GlasgowMichael Baker LWW-BRADD AREA GlasgowTristian Bradley LWW-BRADD AREA GlasgowJoshua Brown LWW-BRADD AREA GlasgowJustin Cohee LWW-BRADD AREA GlasgowHeather Doan LWW-BRADD AREA Glasgow

New Member Report

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First Name Last Name Eligibility Branch Name ANTHONY GARCIA LWW-BRADD AREA GlasgowJoshua Hunt LWW-BRADD AREA GlasgowCheryl Marion LWW-BRADD AREA GlasgowJulie Mohon LWW-BRADD AREA GlasgowDennisse Muniz LWW-BRADD AREA GlasgowKENNETH RIGGS LWW-BRADD AREA GlasgowThomas Stallons LWW-BRADD AREA GlasgowAARON THOMPSON LWW-BRADD AREA GlasgowTHURMAN COLEMAN LWW-BRADD AREA Indirect LendingHOLLY HOUCHENS LWW-BRADD AREA Indirect LendingJEREMY JOLLY LWW-BRADD AREA Indirect LendingRACHAEL MAY LWW-BRADD AREA Indirect LendingLARRY OCONNELL LWW-BRADD AREA Indirect LendingCASEY PATRICK LWW-BRADD AREA Indirect LendingMARY SMITH LWW-BRADD AREA Indirect LendingMICHAEL TURLEY LWW-BRADD AREA Indirect LendingKELSEY WILLIAMS LWW-BRADD AREA Indirect LendingLaurin Dawes LWW-BRADD AREA WKU CampusKAIN HARBISON LWW-BRADD AREA WKU Campus

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COUNTIES Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20ALLEN CO 2 3 2BARREN CO 4 10 10BUTLER CO 1 3 3EDMONSON CO 0 0 0HART CO 3 4 3LOGAN CO 2 6 4METCALF CO 3 2 2MONROE CO 1 0 1SIMPSON CO 2 1 4WARREN CO 43 57 31OTHER 2 8 4

TOTAL 63 94 64 0 0 0 0 0 0 0 0 0

New Accounts by Zip Code Report 2020Service One Credit Union

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MONTH YEAR CLN GLAS 31-W CAMP TotalJAN 2019 67 11 45 5 128JAN 2020 37 13 10 3 63

FEB 2019 48 16 43 6 113FEB 2020 49 11 26 8 94

MAR 2019 69 14 54 6 143MAR 2020 32 14 16 2 64

APR 2019 66 17 58 9 150APR 2020

MAY 2019 52 21 54 10 137MAY 2020

JUN 2019 51 12 38 13 114JUN 2020

JULY 2019 60 19 34 7 120JULY 2020

AUG 2019 62 11 36 15 124AUG 2020

SEPT 2019 45 11 32 10 98SEPT 2020

OCT 2019 52 12 26 9 99OCT 2020

NOV 2019 29 15 22 8 74NOV 2020

DEC 2019 35 15 22 1 73DEC 2020

TOTAL 2019 636 174 464 99 13732020

2019-2020 Membership Account Analysis

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NEW BUSINESS MOTIONS

April 24, 2020

A. Approval of the Consent Agenda.1. Minutes

2. Dividend Transfer3. Membership Applications4. ODP Charge-offs

Carried Failed

B. Approval of the charge-off for the month of April in the amount of $96,050.77.

C. Approval of payment of March monthly Dividends of $141,743.12.

D. Approval of Member Business Loan Policy

E. Approval to the changes to Qualitative Factors for ALLL Calculation.

F. Approval of 401k Policy/Appointment & Removal of Trustees for SOCU 401k Plan.

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DATE: April 24, 2020

MOTION:

To approve the consent agenda, this month includes:

Minutes Monthly Dividend Transfer New Membership Applications Over Draft Protection Charge-offs

FIRST __________________________

SECOND ________________________

Carried ___ Failed ____

A.

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DATE: April 24, 2020

MOTION:

To approve the charge-offs for the month of April in the amount of $96,050.77.

FIRST __________________________

SECOND ________________________

Carried ___ Failed ____

B.

95

DATE: April 24, 2020

MOTION:

To approve the payment of March monthly dividends of $141,743.12.

FIRST __________________________

SECOND ________________________

Carried ___ Failed ____

C.

96

DATE: April 24, 2020 MOTION: To approve Member Business Loan Policy update. FIRST __________________________ SECOND ________________________ Carried ___ Failed ____

D.

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DATE: April 24, 2020

MOTION:

To approve the changes to Qualitative Factors for ALLL Calculation.

FIRST __________________________

SECOND ________________________

Carried ___ Failed ____

E.

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DATE: April 24, 2020 MOTION: To approve 401k Policy/Appointment & Removal of Trustees for SOCU 401k Plan.

FIRST __________________________ SECOND ________________________ Carried ___ Failed ____

F.

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