Commercial Real Estate Loans. Commercial real estate lending is an integral
part of our operating strategy and we intend to continue to take advantage of
opportunities to originate commercial real estate loans. Commercial real estate
loans typically have higher yields, shorter durations and larger loan balances
compared to residential mortgage loans. Commercial real estate lending also
has provided us with another means of broadening our range of customer relationships.
Commercial real estate loans are generally made to borrowers in the southern
United States and are secured by properties in these states. Commercial real
estate loans are generally made for up to 80% of the value of the underlying
real estate. Our commercial real estate loans are typically secured by offices,
hotels, strip shopping centers, warehouses/distribution facilities, land, multi-family
properties, or convenience stores located principally in Georgia, Alabama and
Florida.
Commercial real estate lending involves additional risks compared to one- to
four-family residential lending. Repayment of commercial real estate loans often
depends on the successful operations and income stream of the borrowers, and
commercial real estate loans typically involve larger loan balances to single
borrowers or groups of related borrowers compared to residential real estate
loans. To compensate for the increased risk, our commercial real estate loans
generally have higher interest rates and shorter maturities than our residential
mortgage loans. We offer commercial real estate loans at fixed rates and adjustable
rates tied to the prime rate as reported in The Wall Street Journal. However,
the interest rates on a portion of our commercial real estate loan portfolio
are tied to LIBOR.
Our underwriting criteria for commercial real estate loans include maximum loan-to-value
ratios, debt coverage ratios, secondary sources of repayment, guarantor requirements
and quality of cash flow. As part of our loan approval and underwriting of commercial
real estate loans, we undertake a cash flow analysis, and we generally require
a debt-service coverage ratio of at least 1.15 times. Our capacity to expand
this portfolio may be tempered by lack of demand from qualified borrowers and
intense competition for good loans.
Residential Mortgage Loans. We originate first and second mortgage loans secured
by one- to four-family residential properties within Georgia, Florida and Alabama.
We currently originate mortgages in all of our markets, but utilize centralized
processing at our corporate office.
We originate both fixed-rate and adjustable-rate one- to four-family residential
mortgage loans. Fixed-rate, 30 year, conforming loans are generally originated
for resale into the secondary market on a servicing-released basis. Previously,
we originated 15 year fixed-rate loans and retained them in our portfolio. It
is our intent to originate these 15 year fixed-rate loans for resale into the
secondary market. We generally retain in our portfolio loans that are non-conforming
due to property exceptions and loans that have adjustable rates. We are now
selling loans to Fannie Mae and retaining the servicing associated with these
loans.
After the initial term, the interest rate on ARMs generally adjusts on an annual
basis at a fixed spread over the monthly average yield on United States Treasury
securities, the prime interest rate as listed in The Wall Street Journal, or
LIBOR. The interest rate adjustments are generally subject to a maximum increase
of 2% per adjustment period and 6% over the life of the loan.
Construction Loans. Consistent with our community bank strategy, construction
lending has been an integral part of our overall lending strategy.
We make loans primarily for the construction of one- to four-family residences
but also for multi-family and nonresidential real estate projects on a select
basis. We offer construction loans to pre-approved local builders including
loans on both speculative (unsold) and pre-sold properties. The number of speculative
loans that we will extend to a builder at one time depends upon the financial
strength and credit history of the builder. Our construction loan program is
expected to remain a modest portion of our loan portfolio. We generally limit
the number of outstanding loans on unsold homes under construction within a
specific area and/or to a specific borrower.
Commercial Loans and Consumer Loans. To a much lesser extent, we also originate
non-mortgage loans, including commercial business and consumer loans.
Our commercial business loans are generally limited to terms of five years or
less. We typically attempt to collateralize these loans with a lien on commercial
real estate or with a lien on business assets and equipment. We also generally
require the personal guarantee of the business owner. Interest rates on commercial
business loans are generally higher than interest rates on residential or commercial
real estate loans due to the risk inherent in this type of loan. Commercial
business loans are generally considered to have more risk than residential mortgage
loans or commercial real estate loans because the collateral may be in the form
of intangible assets and/or readily depreciable inventory. Commercial business
loans may also involve relatively large loan balances to single borrowers or
groups of related borrowers, with the repayment of such loans typically dependent
on the successful operation and income stream of the borrower or guarantors.
Such risks can be significantly affected by economic conditions. In addition,
commercial business lending generally requires substantially greater supervision
efforts by our management compared to residential mortgage or commercial real
estate lending.