The Company’s primary segment is Community Banking, which includes providing
a full range of deposit products, commercial loans and consumer loans. The Company
has also designated two additional reportable segments - Insurance Agencies
and General Corporate and Other. The Company’s insurance agencies serve
as agents in the sale of commercial lines of insurance and full lines of property
and casualty, life, health and employee benefits products and services. The
General Corporate and Other operating segment includes mortgage lending, trust
services, credit card activities, investment services and other activities not
allocated to the Community Banking or Insurance Agencies operating segments.
Commercial Lending
The Bank offers a variety of commercial loan services including term loans,
lines of credit, equipment and receivable financing and agricultural loans.
A broad range of short-to-medium term commercial loans, both secured and unsecured,
are made available to businesses for working capital (including inventory and
receivables), business expansion (including acquisition and development of real
estate and improvements), and the purchase of equipment and machinery. The Bank
also makes construction loans to real estate developers for the acquisition,
development and construction of residential subdivisions.
Commercial loans are granted based on the borrower’s ability to generate
cash flow to support its debt obligations and other cash related expenses. A
borrower’s ability to repay commercial loans is substantially dependent
on the success of the business itself and on the quality of its management.
As a general practice, the Bank takes as collateral a security interest in any
available real estate, equipment, inventory, receivables or other personal property,
although such loans may also be made infrequently on an unsecured basis. In
many instances, the Bank requires personal guarantees of its commercial loans
to provide additional credit support.
The Bank has had very little exposure as an agricultural lender. Crop production
loans have been either fully supported by the collateral and financial strength
of the borrower, or a 90% loan guaranty has been obtained through the Farm Service
Agency on such loans.
Residential Consumer Lending
A portion of the Bank’s lending activities consists of the origination
of fixed and adjustable rate residential mortgage loans secured by owner-occupied
property located in the Bank’s primary market areas. Home mortgage lending
is unique in that a broad geographic territory may be served by originators
working from strategically placed offices either within the Bank’s traditional
banking facilities or from other locations. In addition, the Bank offers construction
loans, second mortgage loans and home equity lines of credit.
The Bank finances the construction of individual, owner-occupied houses on the
basis of written underwriting and construction loan management guidelines. First
mortgage construction loans are made to qualified individual borrowers and are
generally supported by a take-out commitment from a permanent lender. The Bank
makes residential construction loans to individuals who intend to erect owner-occupied
housing on a purchased parcel of real estate. The construction phase of these
loans has certain risks, including the viability of the contractor, the contractor’s
ability to complete the project and changes in interest rates.
In most cases, the Bank sells its mortgage loans with terms of 15 years or more
in the secondary market and either retains or releases the right to service
those loans. The sale of mortgage loans to the secondary market allows the Bank
to manage the interest rate risks related to such lending operations. Generally,
after the sale of a loan with servicing retained, the Bank’s only involvement
is to act as a servicing agent. In certain cases, the Bank may be required to
repurchase mortgage loans upon which customers have defaulted that were previously
sold in the secondary market if these loans did not meet the underwriting standards
of the entity that purchased the loans. Any such loans are held by the Bank
in its mortgage loan portfolio.
Non-Residential Consumer Lending
Non-residential consumer loans made by the Bank include loans for automobiles,
recreation vehicles, boats, personal (secured and unsecured) and deposit account
secured loans. Non-residential consumer loans are attractive to the Bank because
they typically have a shorter term and carry higher interest rates than those
charged on other types of loans.
The Bank also issues credit cards solicited on the basis of applications received
through referrals from the Bank’s branches and other marketing efforts.
The Bank generally has a small portfolio of credit card receivables outstanding.