Credit Evaluation School - May 2023

Items Subject to Adverse Classification SAMPLE WRITEUP Includes assets and off-balance sheet items which are detailed in the following categories: Substandard Assets - A Substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful Assets - An asset classified Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loss Assets - An asset classified Loss is considered uncollectable and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future. CATEGORY AMOUNT, DESCRIPTION AND COMMENTS Substandard Doubtful Loss 1,045 78 Days PD 1,045 THE 19 TH HOLE, INC. By: Tiger Woods, President Gty: Tiger Woods Business operates as a local bar/restaurant/indoor golf simulation. Indebtedness is the balance of a 1,100M note originated 10-5-16 with principal and interest payable at $7,567 per month for 20 years. Purpose of the loan was to purchase an existing restaurant and add an indoor golf simulation bay. Source of repayment is from the operation of the bar. Loan was 78 days past due and payments have been extended five times since origination. A payment was made during the examination bringing the note current. The business continues to struggle financially. CPA-compiled financials as of 12-31-18 indicate a highly leveraged operation and reflect TA of 1,490M, TL of 1,610M, for a deficit NW of 120M. Assets are concentrated in net FA of 1,395M including various F&F and M&E. Liquidity is tight and was (14M). Operating income for 2018 shows a net loss of 100M on gross sales of 750M. Cash flow from operations available to service debt totals (35M). An unsigned and stale personal statement on the guarantor dated 11-15-17 adds minimal support and little liquidity with TA of 542M and NW of 145M. Cash was only 2M. Collateral consists of a first REM on the commercial building located in Iowa City, Iowa along with a blanket security agreement covering general business assets. An appraisal performed on 9-2-16 indicates an “as is” value of 950M and an “as completed” value of 1,350M. The business was a new venture for Mr. Woods, who previously worked as a semi-professional golfer. The golf simulation bay closed last winter as Mr. Woods lost his contract with operator/servicer of the golf simulator. The entity struggles with employee turnover, unreliable suppliers, and pressure from existing competition. The operation continues to be unprofitable on a monthly basis and some suppliers are demanding cash upon delivery further limiting liquidity. President Mickelson now estimates the value of the property at 1,200M based on sales of similar properties. Due the to the apparent cash flow and liquidity issues, unprofitable operations, leveraged position, and marginal collateral position, the loan is classified Substandard. This is a downgrade from management’s internal Pass rating. President Mickelson disagrees with the assigned classification. He stated the operation is gradually gaining in popularity among the younger clientele, and he believes the operation can return to profitability in the next three to five years. President Mickelson believes that Mr. Woods’ relatives are providing funds for working capital in the daily operation and will continue to do so for the foreseeable future. Originating/Servicing Officer: President Phil Mickelson 12345

Internal Classification: Pass Examiner: Dustin Johnson

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