What are New Peoples Bankshares Inc's Business Segments?
Commercial Loans. We make commercial loans to qualified businesses in our market
area. Our commercial lending consists primarily of commercial and industrial loans
to finance accounts receivable, inventory, property, plant and equipment. Commercial
business loans generally have a higher degree of risk than residential mortgage
loans, but have commensurately higher yields. Residential mortgage loans are generally
made on the basis of the borrower’s ability to make repayment from employment
and other income and are secured by real estate whose value tends to be easily
ascertainable. In contrast, commercial business loans typically are made on the
basis of the borrower’s ability to make repayment from cash flow from its
business and are secured by business assets, such as commercial real estate, accounts
receivable, equipment and inventory. As a result, the availability of funds for
the repayment of commercial business loans may be substantially dependent on the
success of the business itself.
Further, the collateral for commercial business loans may depreciate over time
and cannot be appraised with as much precision as residential real estate. To
manage these risks, our underwriting guidelines require us to secure commercial
loans with both the assets of the borrowing business and other additional collateral
and guarantees that may be available. In addition, we actively monitor certain
measures of the borrower, including advance rate, cash flow, collateral value
and other appropriate credit factors.
Residential Mortgage Loans. Our residential mortgage loans consist of residential
first and second mortgage loans, residential construction loans, home equity lines
of credit and term loans secured by first and second mortgages on the residences
of borrowers for home improvements, education and other personal expenditures.
We make mortgage loans with a variety of terms, including fixed and floating or
variable rates and a variety of maturities.
Under our underwriting guidelines, residential mortgage loans are generally made
on the basis of the borrower’s ability to make repayment from employment
and other income and are secured by real estate whose value tends to be easily
ascertainable. These loans are made consistent with our appraisal policies and
real estate lending policies, which detail maximum loan-to-value ratios and maturities.
New requirements arising out of the response to the recent financial crisis for
extending residential mortgage loans may impact our ability to make these types
of loans in the same volume as in the past.
Construction Loans. Construction lending entails significant additional risks,
compared to residential mortgage lending. Construction loans often involve larger
loan balances concentrated with single borrowers or groups of related borrowers.
Construction loans also involve additional risks attributable to the fact that
loan funds are advanced upon the security of property under construction, which
is of uncertain value prior to the completion of construction. Thus, it is more
difficult to evaluate the total loan funds required to complete a project and
related loan-to-value ratios accurately. To minimize the risks associated with
construction lending, loan-to-value limitations for residential, multi-family
and non-residential construction loans are in place. These are in addition to
the usual credit analysis of borrowers. Management feels that the loan-to-value
ratios help to minimize the risk of loss and to compensate for normal fluctuations
in the real estate market. Maturities for construction loans generally range from
4 to 12 months for residential property and from 6 to 18 months for non-residential
and multi-family properties.
Consumer Loans. Our consumer loans consist primarily of installment loans to individuals
for personal, family and household purposes. The specific types of consumer loans
that we make include home improvement loans, debt consolidation loans and general
consumer lending. Consumer loans entail greater risk than residential mortgage
loans do, particularly in the case of consumer loans that are unsecured, such
as lines of credit, or secured by rapidly depreciating assets such as automobiles.
In such cases, any repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment of the outstanding loan balance as a result
of the greater likelihood of damage, loss or depreciation. The remaining deficiency
often does not warrant further substantial collection efforts against the borrower.
In addition, consumer loan collections are 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. Furthermore, the application of
various federal and state laws, including federal and state bankruptcy and insolvency
laws, may limit the amount which can be recovered on such loans. A borrower may
also be able to assert against the Bank as an assignee any claims and defenses
that it has against the seller of the underlying collateral.
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