Non-Farm Non-Residential Loans. Non-farm non-residential loans are an integral
part of our operating strategy. We expect to continue to emphasize this business
line in the future with a target loan size of $1.0 million to $10.0 million
to small businesses and real estate projects in our market area. Permanent loans
on non-farm non-residential properties are generally originated in amounts up
to 85% of the appraised value of the property for owner-occupied commercial
real estate properties and up to 80% of the appraised value of the property
for non- owner-occupied commercial real estate properties. We consider a number
of factors in originating non-farm non-residential 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 mortgaged property
securing the loan. 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 debt
service coverage ratio (the ratio of net operating income to debt service) to
ensure that the borrower's net operating income together with the borrower's
other sources of income is at least 125% of the annual debt service and the
ratio of the loan amount to the appraised value of the mortgaged property. We
generally obtain personal guarantees from the borrower or a third party as a
condition to originating commercial real estate loans. All non-farm non-residential
loans are appraised by outside independent appraisers approved by the board
of directors.
Commercial and Industrial Loans. Commercial and industrial loans (excluding
syndicated loans) are generally made to small and mid-sized companies located
within the State of Louisiana. We also participate in government programs which
guarantee portions of commercial and industrial loans such as the SBA and USDA.
In most cases, we require collateral of equipment, accounts receivable, inventory,
chattel or other assets before making a commercial business loan. We have a
dedicated staff within our credit department that monitors asset based lending
and regularly conducts reviews of borrowing based certificates, aging and inventory
reports, and on-site audits. Typically, our commercial lines of credit are adjustable
rate lines, indexed to the prime interest rate, which generally mature yearly.
Our underwriting standards for commercial and industrial loans include a review
of the applicant's tax returns, financial statements, credit history, the underlying
collateral and an assessment of the applicant's ability to meet existing obligations
and payments on the proposed loan based on cash flow generated by the applicant's
business. We generally obtain personal guarantees from the borrower or a third
party as a condition to originating commercial and industrial loans.
One- to Four-Family Residential Real Estate Loans. At December 31, 2015, our
one- to four-family residential real estate loans totaled $129.6 million, or
15.4% of our total loan portfolio. We originate one- to four-family residential
real estate loans that are secured primarily by residential property in Louisiana.
We generally originate loans in amounts up to 95% of the lesser of the appraised
value or purchase price of the mortgaged property. We also originate one- to
four-family residential real estate loans secured by non-owner occupied properties,
but less frequently. Our fixed-rate one- to four-family residential real estate
loans include loans that generally amortize on a monthly basis over periods
between 10 to 30 years with maturities that range from eight to 30 years. Fixed
rate one- to four-family residential real estate loans often remain outstanding
for significantly shorter periods than their contractual terms because borrowers
have the right to refinance or prepay their loans. We do not offer one- to four-family
residential real estate loans specifically designed for borrowers with sub-prime
credit scores, including interest-only, negative amortization or payment option
adjustable-rate mortgage loans.
onstruction and Land Development Loans. We offer loans to finance the construction
of various types of commercial and residential property. These loans generally
are offered as fixed or adjustable-rate loans. We will originate residential
construction loans for individual borrowers and builders, provided all necessary
plans and permits have been obtained. Construction loan funds are disbursed
as the project progresses. We will originate construction loans up to 80% of
the estimated completed value of the project and we will originate land development
loans in amounts up to 75% of the value of the property as developed. We will
originate owner occupied one-to-four family residential construction loans up
to 90% of the estimated completed value of the property.
Construction and land development financing is generally considered to involve
a higher degree of risk of loss than long-term financing on improved, occupied
real estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of construction
and development and the estimated cost (including interest) of construction.
During the construction phase, a number of factors could result in delays and
cost overruns. If the estimate of construction costs proves to be inaccurate,
we may be required to advance funds beyond the amount originally committed to
permit completion of the project. Additionally, if the estimate of value proves
to be inaccurate, we may be confronted, at or prior to the maturity of the loan,
with a project having a value which is insufficient to assure full repayment.
Agricultural Loans. We are the leading lender for agricultural loans in our
Southwest Louisiana market. Our agricultural lending includes loans to farmers
for the purpose of cultivating rice, sugarcane, soybeans, timber, poultry and
cattle. Such loans are generally offered with fixed rates at a margin above
prime for a term of generally one year. We will originate agricultural loans
in those instances where the borrower's financial strength and creditworthiness
has been established. Agricultural loans generally bear higher interest rates
than residential loans, but they also may involve a higher risk of default since
their repayment is generally dependent on the successful operation of the borrower's
business. Substantially all of our originated agricultural loans are guaranteed
by the U.S. Farm Service Agency. We generally obtain personal guarantees from
the borrower or a third party as a condition to originating its agricultural
loans.
The underwriting standards used for agricultural loans include a determination
of the borrower's ability to meet existing obligations and payments on the proposed
loan from normal cash flows generated in the borrower's business. The financial
strength of each applicant also is assessed through review of financial statements
and tax returns provided by the applicant. The creditworthiness of a borrower
is derived from a review of credit reports as well as a search of public records.
Once originated, agricultural loans are reviewed periodically. Financial statements
are requested at least annually and are reviewed for substantial deviations
or changes that might affect repayment of the loan. Loan officers also visit
the premises of borrowers to observe the business premises, facilities, and
personnel and to inspect the collateral. Underwriting standards for agricultural
loans are different for each type of loan depending on the financial strength
of the borrower and the value of collateral offered as security.
Consumer loans generally entail greater risk than other types of loans, particularly
in the case of loans that are unsecured or are secured by assets that tend to
depreciate in value, such as automobiles. As a result, consumer loan collections
are primarily dependent on the borrower's continuing financial stability and
thus are more likely to be adversely affected by job loss, divorce, illness
or personal bankruptcy. In these cases, repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment for the outstanding
loan, and the remaining value often does not warrant further substantial collection
efforts against the borrower.
Multi-Family Loans. On occasion we will originate loans secured by multifamily
real estate. Nearly all of our multifamily loans are secured by properties in
Louisiana. The underwriting of multi-family loans follows the general guidelines
for our non-farm non-residential loans.
Loans secured by multi-family real estate generally involve a greater degree
of credit risk than one- to four-family residential mortgage loans and carry
larger loan balances. This increased credit risk is a result of several factors,
including the concentration of principal in a limited number of loans and borrowers,
the effects of general economic conditions on income producing properties, and
the increased difficulty of evaluating and monitoring these types of loans.
Furthermore, the repayment of loans secured by multi-family real estate typically
depends upon the successful operation of the real estate property securing the
loans. If the cash flow from the project is reduced, the borrower's ability
to repay the loan may be impaired.