What are Melrose Bancorp's Business Segments?
he general component of the allowance for loan losses is based on historical
loss experience adjusted for qualitative factors stratified by the following
loan segments: one- to four-family residential real estate, home equity loans
and lines of credit, commercial real estate, construction, and consumer. 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;
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:
One- to four-family residential real estate: The Company generally does not
originate loans with a loan-to-value ratio greater than 80% and does not grant
subprime loans. Loans with loan-to-value ratios greater than 80% require private
mortgage insurance. 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. Loans in this segment also include home equity loans
and lines of credit. 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 Massachusetts. The underlying cash flows generated by
the properties are adversely impacted by a downturn in the economy as evidenced
by increased vacancy rates, which in turn, will have an effect on the credit
quality in this segment. Loans in this segment also include loans secured by
multifamily dwellings. Management periodically obtains rent rolls and continually
monitors the cash flows of these loans.
Construction loans: Loans in this segment primarily include speculative real
estate development loans for which payment is derived from sale of the property.
Credit risk is affected by cost overruns, time to sell at an adequate price,
and market conditions.
Consumer loans: Loans in this segment are generally secured and repayment is
dependent on the credit quality of the individual borrower. Loans in this segment
include auto loans and other consumer loans.
|