One-to-Four Family Residential Loans. Our origination of residential mortgage
loans enables borrowers to purchase or refinance existing homes located in our
primary market area.
Our residential lending policies and procedures conform to the secondary market
guidelines. We offer a mix of adjustable rate mortgage loans and fixed-rate
mortgage loans with terms of up to 30 years. Borrower demand for adjustable-rate
loans compared to fixed-rate loans is a function of the level of interest rates,
the expectations of changes in the level of interest rates, and the difference
between the interest rates and loan fees offered for fixed-rate mortgage loans
as compared to an initially discounted interest rate and loan fees for multi-year
adjustable-rate mortgages. The relative amount of fixed-rate mortgage loans
and adjustable-rate mortgage loans that can be originated at any time is largely
determined by the demand for each in a competitive environment. We sell most
of the fixed-rate mortgages we originate, which reduces our balances of adjustable
rate mortgages as they are refinanced into fixed-rate mortgages during periods
of low interest rates. We determine the loan fees, interest rates and other
provisions of mortgage loans based on our own pricing criteria and competitive
market conditions.
Interest rates and payments on our adjustable-rate mortgage loans adjust at
intervals of one to five years after an initial fixed period that ranges from
one to ten years. Interest rates on our adjustable-rate loans generally are
indexed to the US Treasury Constant Maturity Index for the applicable periods.
However, in some limited situations, these loans are indexed to the one year
London Interbank Offered Rate (“LIBOR”).
While one-to-four family residential real estate loans are normally originated
with up to 30-year terms, such loans typically remain outstanding for substantially
shorter periods because borrowers often prepay their loans in full either upon
sale of the property pledged as security or upon refinancing the original loan.
Therefore, average loan maturity is a function of, among other factors, the
level of purchase and sale activity in the real estate market, prevailing interest
rates and the interest rates payable on outstanding loans on a regular basis.
We do not offer residential mortgage loans with negative amortization and we
currently offer marketable interest-only residential mortgage loans to well
qualified borrowers in limited situations.
We do not make owner occupied one-to-four family residential real estate loans
with loan-to-value ratios exceeding 95%, unless the loan is federally guaranteed.
Loans with loan-to-value ratios in excess of 80% typically require private mortgage
insurance. In addition, we do not make non-owner occupied one-to-four family
residential real estate loans with loan-to-value ratios exceeding 85% unless
we are able to sell the loan on the secondary market. We require all properties
securing mortgage loans to be appraised by a board-approved independent appraiser.
We also require title insurance on all mortgage loans. Borrowers must obtain
hazard insurance, and flood insurance is required for all loans located in flood
hazard areas.
Commercial Mortgage Loans. We offer fixed- and adjustable-rate mortgage loans
secured by non-residential real estate. Our commercial mortgage loans are generally
secured by commercial, industrial, manufacturing, small to moderately-sized
office, retail, hotel, hospital and church properties located in our primary
market area. Although we have historically made commercial mortgage loans that
are secured by both owner-occupied and nonowner-occupied properties, we continue
to emphasize the origination of commercial mortgage loans that are secured by
owner-occupied properties.
We originate fixed-rate and adjustable-rate commercial mortgage loans, generally
with terms of three to five years and payments based on an amortization schedule
of up to 30 years, resulting in “balloon” balances at maturity.
For our adjustable-rate commercial mortgage loans, interest rates are typically
equal either to the prime lending rate as reported in The Wall Street Journal
or to LIBOR, plus an applicable margin. Depending upon the interest rate cycle,
our adjustable-rate commercial mortgage loans typically provide for interest
rate floors. Loans are secured by first mortgages, generally are originated
with a maximum loan-to-value ratio of 85% and may require specified debt service
coverage ratios depending on the characteristics of the project. Rates and other
terms on such loans generally depend on our assessment of credit risk after
considering such factors as the borrower’s financial condition, credit
history, loan-to-value ratio, debt service coverage ratio and other factors,
including whether the property securing the loan will be owner occupied.
Construction and Land Development Loans. We have originated construction and
land development loans for commercial properties, such as retail shops and office
units, and multi-family properties. Typically commercial construction loans
are for a term of 12 to 24 months with interest payable monthly and are generally
followed by a permanent loan with monthly principal and interest payments. Commercial
construction loans generally require a maximum loan-to-value ratio of 80% and
land development loans generally require a maximum loan-to-value ratio of 75%.
We also originate residential construction and land development loans for one-to-four
family homes. Residential construction loans are typically for a term of 12
months with interest payable monthly, and are generally followed by an automatic
conversion to a 15-year or 30-year permanent loan with monthly payments of principal
and interest. Residential construction loans are generally made only to homeowners
and the repayment of such loans generally comes from the proceeds of a permanent
mortgage loan for which a commitment is typically in place when the construction
loan is originated. We generally require a maximum loan-to-value ratio of 80%
for all construction loans unless Private Mortgage Insurance is obtained to
allow for higher loan-to-value ratios.
Interest rates on all construction loans are generally tied to an index plus
an applicable spread and funds are disbursed on a percentage-of-completion basis
following an inspection by a third party inspector.
We also selectively originate loans to individuals and developers for the purpose
of developing vacant land in our primary market area, typically for building
an individual’s future residence or, in the case of a developer, residential
subdivisions. Land development loans, which are offered for terms of up to 18
months, are generally indexed either to the prime rate as reported in The Wall
Street Journal or to LIBOR, plus an applicable margin. We generally require
a maximum loan-to-value ratio of 75% of the discounted market value based upon
expected cash flows upon completion of the project. We also originate loans
to individuals secured by undeveloped land held for investment purposes. These
loans are typically amortized for no more than fifteen years with a three- or
five-year balloon payment.
Revolving Mortgages and Consumer Loans. We offer revolving mortgage loans, which
consist of home equity loans and lines of credit, and various consumer loans,
including automobile loans and loans secured by deposits. Our revolving mortgage
loans consist of both home equity loans with fixed-rate amortizing terms of
up to 15 years and adjustable rate lines of credit with interest rates indexed
either to the prime rate as published in The Wall Street Journal or to LIBOR,
plus or minus an applicable margin. The procedures for underwriting consumer
loans include an assessment of the applicant’s payment history on other
debts and ability to meet existing obligations and payments on the proposed
loan. During 2015, we discontinued the indirect origination of automobile loans
through local dealers, although we continue to offer loans secured by motor
vehicles directly to consumers.
Commercial and Industrial Loans. We typically offer commercial and industrial
loans to small businesses located in our primary market area. Commercial and
industrial loans consist of floating rate loans indexed either to the prime
rate as published in The Wall Street Journal or to LIBOR, plus an applicable
margin and fixed rate loans for terms of up to 10 years, depending on the useful
life and type of collateral. Our commercial and industrial loan portfolio consists
primarily of loans that are secured by equipment, accounts receivable and inventory,
but also includes a smaller amount of unsecured loans for purposes of financing
expansion or providing working capital for general business purposes. Key loan
terms vary depending on the collateral, the borrower’s financial condition,
credit history and other relevant factors.