Commercial—Operating Loans. Our commercial lines of credit are generally
used by our customers to finance short-term working capital needs, like accounts
receivable and inventory. Our commercial lines of credit generally are priced
on an adjustable-rate basis and may be secured or unsecured. We generally obtain
personal guarantees with all commercial lines of credit. Business assets such
as accounts receivable, inventory, equipment, furniture and fixtures may be
used to secure lines of credit. Our lines of credit typically have a maximum
term of 12 months. Our commercial term loans are generally used by our customers
to fund longer-term borrowing needs, such as purchasing equipment, property
improvements or other fixed assets. We typically fix the maturity of a term
loan to correspond to 80% of the useful life of any equipment purchased or 7
years, whichever is less. Term loans can be secured with a variety of collateral,
including business assets such as equipment, furniture, fixtures or real estate.
Commercial—Real Estate Loans. Commercial real estate loans generally
carry higher interest rates and have shorter terms than one- to four-family
residential real estate loans. Commercial real estate loans, however, entail
additional credit risks compared to one- to four-family residential real estate
loans, as they typically involve larger loan balances concentrated with single
borrowers or groups of related borrowers. In addition, the payment of loans
secured by income-producing properties typically depends on the successful operation
of the related real estate project, and thus may be subject to a greater extent
to adverse conditions in the real estate market and in the general economy.
Agricultural—Operating Loans are used to fund the borrower's crop production
operating expenses; livestock operating and revolving loans used to purchase
livestock for resale and related livestock production expense; and loans used
to finance the purchase of machinery, equipment and breeding stock. Agricultural
operating loans are originated at an adjustable- or fixed-rate of interest and
generally for a term of up to 12 months. In the case of agricultural operating
loans secured by breeding livestock and/or farm equipment, such loans are originated
at fixed rates of interest for a term of up to five years.
Agricultural—Real Estate Loans. We consider a number of factors in originating
agricultural real estate loans. We evaluate the qualifications and financial
condition of the borrower, including credit history, profitability and expertise,
as well as the value and condition of the agricultural property securing the
loan. When evaluating the qualifications of the borrower, we consider the financial
resources of the borrower, the borrower's experience in owning or managing similar
property and the borrower's payment history with us and other financial institutions.
In evaluating the property securing the loan, the factors we consider include
the net operating income of the mortgaged property before debt service and depreciation,
the ratio of the loan amount to the appraised value of the mortgaged property
and the debt service coverage ratio (the ratio of net operating income to debt
service).
Residential Real Estate—One- to Four-Family Loans. Historically, our
primary lending consisted of originating one- to four-family, owner-occupied
residential real estate loans, substantially all of which were secured by properties
located in our market areas. Over the past several years, we have begun to shift
our lending focus towards originating commercial and agricultural operating
and real estate loans.
Residential Real Estate—Home Equity Loans.Home equity loans and home
equity lines of credit are generally underwritten using the same criteria that
we use to underwrite one- to four-family residential real estate loans. We typically
originate home equity loans and home equity lines of credit on the basis of
the applicant's credit history, an assessment of the applicant's ability to
meet existing obligations and payments on the proposed loan and the value of
the collateral securing the loan. Home equity loans are offered with fixed and
adjustable interest rates. Lines of credit also are offered with fixed and adjustable
rates, which generally are indexed to the prime rate, and with a draw period
up to five years. The loan-to-value ratio for our home equity loans is generally
limited to 85% when combined with the first security lien, if applicable. The
loan to value of our home equity lines of credit are generally limited to 85%,
unless we hold the first mortgage. If we hold the first mortgage, we will permit
a loan to value of up to 90% and adjust the interest rate and underwriting standards
to compensate for the additional risk.