What are First Connecticut Bancorp's Business Segments?
The general component of the allowance for loan losses is based on historical
loss experience adjusted for qualitative factors stratified by the following loan
segments: residential real estate, commercial real estate, construction, installment,
commercial, collateral, home equity line of credit, demand, revolving credit and
resort. Construction loans include classes for commercial investment real estate
construction, commercial owner occupied construction, residential development,
residential subdivision construction and residential owner occupied construction
loans. Management uses a rolling average of historical losses based on a time
frame appropriate to capture relevant loss data for each loan segment. This historical
loss factor is adjusted for the following qualitative factors: levels/trends in
delinquencies and nonaccrual loans; trends in volume and terms of loans; effects
of changes in risk selection and underwriting standards and other changes in lending
policies, procedures and practices; experience/ability/depth of lending management
and staff; and national and local economic trends and conditions.
The qualitative factors are determined based on the various risk characteristics
of each loan segment. Risk characteristics relevant to each portfolio segment
are as follows:
Residential real estate – Residential real estate loans are generally originated
in amounts up to 95.0% of the lesser of the appraised value or purchase price
of the property, with private mortgage insurance required on loans with a loan-to-value
ratio in excess of 80.0%. The Company does not grant subprime loans. All loans
in this segment are collateralized by owner-occupied residential real estate and
repayment is dependent on the credit quality of the individual borrower. Typically,
all fixed-rate residential mortgage loans are underwritten pursuant to secondary
market underwriting guidelines which include minimum FICO standards. The overall
health of the economy, including unemployment rates and housing prices, will have
an effect on the credit quality in this segment.
Commercial real estate – Loans in this segment are primarily income-producing
properties throughout New England. The underlying cash flows generated by the
properties may be adversely impacted by a downturn in the economy as evidenced
by increased vacancy rates, which in turn, may have an effect on the credit quality
in this segment. Management generally obtains rent rolls and other financial information,
as appropriate on an annual basis and continually monitors the cash flows of these
loans.
Construction loans – Loans in this segment include commercial construction
loans, real estate subdivision development loans to developers, licensed contractors
and builders for the construction and development of commercial real estate projects
and residential properties. Construction lending contains a unique risk characteristic
as loans are originated under market and economic conditions that may change between
the time of origination and the completion and subsequent purchaser financing
of the property. In addition, construction subdivision loans and commercial and
residential construction loans to contractors and developers entail additional
risks as compared to single-family residential mortgage lending to owner-occupants.
These loans typically involve large loan balances concentrated in single borrowers
or groups of related borrowers. Real estate subdivision development loans to developers,
licensed contractors and builders are generally speculative real estate development
loans for which payment is derived from sale of the property. Credit risk may
be affected by cost overruns, time to sell at an adequate price, and market conditions.
Construction financing is generally considered to involve a higher degree of credit
risk than longer-term financing on improved, owner-occupied real estate. Residential
construction credit quality may be impacted by the overall health of the economy,
including unemployment rates and housing prices.
Commercial – Loans in this segment are made to businesses and are generally
secured by assets of the business. Repayment is expected from the cash flows of
the business. A weakened economy, and resultant decreased consumer spending, will
have an effect on the credit quality in this segment.
Home equity line of credit – Loans in this segment include home equity loans
and lines of credit underwritten with a loan-to-value ratio generally limited
to no more than 80%, including any first mortgage. Our home equity lines of credit
have ten-year terms and adjustable rates of interest which are indexed to the
prime rate. The overall health of the economy, including unemployment rates and
housing prices, may have an effect on the credit quality in this segment.
Installment, Collateral, Demand, Revolving Credit and Resort – Loans in
these segments include loans principally to customers residing in our primary
market area with acceptable credit ratings. Our installment and collateral consumer
loans generally consist of loans on new and used automobiles, loans collateralized
by deposit accounts and unsecured personal loans. The overall health of the economy,
including unemployment rates and housing prices, may have an effect on the credit
quality in this segment. Excluding collateral loans which are fully collateralized
by a deposit account, repayment for loans in these segments is dependent on the
credit quality of the individual borrower. The resort portfolio consists of a
direct receivable loan outside the Northeast which is amortizing to its contractual
obligations. The Company has exited the resort financing market with a residual
portfolio remaining.
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