Commercial and Industrial: Commercial and industrial loans’ source of repayment
is primarily based on the identified cash flows of the borrower and secondarily
on the underlying collateral provided by the borrower. The cash flows of borrowers,
however, may not be as expected, and the collateral securing these loans may fluctuate
in value. Loans are made for working capital, equipment purchases, or other purposes.
Most commercial and industrial loans are secured by the assets being financed
and may incorporate a personal guarantee.
Owner-Occupied Commercial Real Estate: The primary source of repayment is the
cash flow from the ongoing operations and activities conducted by the borrower,
or an affiliate of the borrower, who owns the property. This portfolio is generally
concentrated in the Central Indiana and greater Phoenix, Arizona markets and
often times is secured by manufacturing and service facilities, as well as office
buildings.
Investor Commercial Real Estate: These loans are underwritten primarily based
on the cash flow expected to be generated from the property and are secondarily
supported by the value of the real estate. These loans typically incorporate
a personal guarantee. This portfolio typically involves higher loan principal
amounts, and the repayment of these loans is generally dependent on the successful
operation of the property securing the loan or the business conducted on the
property securing the loan. Investor commercial real estate loans may be more
adversely affected by conditions in the real estate markets, changing industry
dynamics, or the overall health of the general economy. The properties securing
the Company’s investor commercial real estate portfolio tend to be diverse
in terms of property type and are typically located in the state of Indiana
and markets adjacent to Indiana. Management monitors and evaluates commercial
real estate loans based on property financial performance, collateral value,
guarantor strength, and other risk grade criteria. As a general rule, the Company
avoids financing special use projects or properties outside of its designated
market areas unless other underwriting factors are present to help mitigate
risk.
Construction: Construction loans are secured by real estate and improvements
and are made to assist in the construction of new structures, which may include
commercial (retail, industrial, office, multi-family) properties or single family
residential properties offered for sale by the builder. These loans generally
finance a variety of project costs, including land, site preparation, construction,
closing and soft costs and interim financing needs. The cash flows of builders,
while initially predictable, may fluctuate with market conditions, and the value
of the collateral securing these loans may be subject to fluctuations based
on general economic changes.
Single Tenant Lease Financing: These loans are made to property owners of real
estate subject to long term lease arrangements with single tenant operators.
The real estate is typically operated by regionally, nationally or globally
branded businesses. The loans are underwritten based on the financial strength
of the borrower, characteristics of the real estate, cash flows generated from
the lease arrangements and the financial strength of the tenant. Similar to
the other loan portfolios, management monitors and evaluates these loans based
on borrower and tenant financial performance, collateral value, industry trends
and other risk grade criteria.
Residential Mortgage: With respect to residential loans that are secured by
1-4 family residences and are generally owner occupied, the Company typically
establishes a maximum loan-to-value ratio and requires private mortgage insurance
if that ratio is exceeded. Repayment of these loans is primarily dependent on
the financial circumstances of the borrowers, which can be impacted by economic
conditions in their market areas such as unemployment levels. Repayment can
also be impacted by changes in residential property values. Risk is mitigated
by the fact that the loans are of smaller individual amounts and spread over
a large number of borrowers in geographically diverse locations throughout the
country.
Home Equity: Home equity loans and lines of credit are typically secured by
a subordinate interest in 1-4 family residences. The properties securing the
Company's home equity portfolio are generally geographically diverse as the
Company offers these products on a nationwide basis. Repayment of home equity
loans and lines of credit may be impacted by changes in property values on residential
properties and unemployment levels, among other economic conditions and financial
circumstances in the market.
Other Consumer: These loans primarily consist of consumer loans and credit cards.
Consumer loans may be secured by consumer assets such as horse trailers or recreational
vehicles. Some consumer loans are unsecured, such as small installment loans
and certain lines of credit. Repayment of consumer loans is primarily dependent
upon the personal income of the borrowers, which can be impacted by economic
conditions in their market areas such as unemployment levels. Risk is mitigated
by the fact that the loans are of smaller individual amounts and spread over
a large number of borrowers in geographically diverse locations throughout the
country.