One-to-Four Family Mortgage Lending. The Bank offers both fixed-rate and adjustable-rate
mortgage (“ARM”) loans secured by one-to-four family residences
with maturities up to 30 years. The majority of such loans are secured by property
located in the Bank’s primary market area. Loan originations are typically
generated by commissioned loan representatives in the exclusive employment of
the Bank and their contacts within the local real estate industry, members of
the local communities and the Bank’s existing or past customers. On occasion
the Bank purchases loans originated by other banks.
The Bank’s policy is to originate one-to-four family residential mortgage
loans in amounts up to 80% of the lower of the appraised value or the selling
price of the property securing the loan and up to 95% of the appraised value
or selling price if private mortgage insurance is obtained. Appraisals are obtained
for loans secured by real estate properties. The weighted average loan-to-value
ratio of the Bank’s one-to-four family mortgage loans was 55.1% at December
31, 2015 based on appraisal values at the time of origination. Title insurance
is typically required for first mortgage loans. Mortgage loans originated by
the Bank include due-on-sale clauses which provide the Bank with the contractual
right to declare the loan immediately due and payable in the event the borrower
transfers ownership of the property without the Bank’s consent. Due-on-sale
clauses are an important means of adjusting the rates on the Bank’s fixed-rate
mortgage loan portfolio and the Bank has generally exercised its rights under
these clauses.
Commercial Real Estate, Multi-Family and Land Lending. The Bank originates
commercial real estate loans that are secured by properties, or properties under
construction, generally used for business purposes such as office, industrial
or retail facilities. A substantial majority of the Bank’s commercial
real estate loans are located in its primary market area. The Bank’s underwriting
procedures provide that commercial real estate loans may be made in amounts
up to 80% of the appraised value of the property. The Bank currently originates
commercial real estate loans with terms of up to ten years and amortization
schedules up to thirty years with fixed or adjustable rates. The loans typically
contain prepayment penalties over the initial term. In reaching its decision
on whether to make a commercial real estate loan, the Bank considers the net
operating income of the property and the borrower’s expertise, credit
history and profitability among other factors. The Bank has generally required
that the properties securing commercial real estate loans have debt service
coverage ratios of at least 130%. The Bank generally requires the personal guarantee
of the principal borrowers for commercial real estate loans.
Residential Construction Lending. The Bank originates residential construction
loans primarily on a construction/permanent basis with such loans converting
to an amortizing loan following the completion of the construction phase. Most
of the Bank’s residential construction loans are made to individuals building
a residence.
Consumer Loans. The Bank originates home equity loans typically as fixed-rate
loans with terms ranging from 5 to 20 years. The Bank also offers variable-rate
home equity lines of credit. Home equity loans and lines of credit are based
on the applicant’s income and their ability to repay and are secured by
a mortgage on the underlying real estate.
Commercial and Industrial Lending. The Bank originates commercial and industrial
loans and lines of credit (including for working capital; fixed asset purchases;
and acquisition, receivable and inventory financing) primarily in the Bank’s
market area. In underwriting commercial and industrial loans and credit lines,
the Bank reviews and analyzes financial history and capacity, collateral value,
strength and character of the principals, and general payment history of the
principal borrowers in coming to a credit decision. The Bank generally originates
C&I loans secured by the assets of the business including accounts receivable,
inventory, fixtures, etc. The Bank generally requires the personal guarantee
of the principal borrowers for all commercial and industrial loans.