Residential Real Estate Loans
The Company’s residential real estate loans consist primarily of one-
to four-family residential mortgages and carry many of the same customer and
industry risks as the commercial loan portfolio. Real estate loans to consumers
are secured primarily by a first lien mortgage or deed of trust with evidence
of title in favor of the Bank. The Company also requires proof of hazard insurance,
required at the time of closing, with the Bank or Loan Central named as the
mortgagee and as loss payee. The Company generally requires the amount of a
residential real estate loan be no more than 80% of the purchase price or the
appraisal value (whichever is the lesser) of the real estate securing the loan,
unless private mortgage insurance is obtained by the borrower for the percentage
exceeding 80%. These loans generally range from one-year adjustable to thirty-year
fixed-rate mortgages. The Company’s market area for real estate lending
is primarily located in southeastern Ohio and portions of western West Virginia.
The Bank continues to sell a portion of its new fixed-rate real estate loan
originations to the Federal Home Loan Mortgage Corporation (“Freddie Mac”)
to enhance customer service and loan pricing. Secondary market sales of these
real estate loans, which have fixed rates with fifteen- to thirty-year terms,
have assisted in meeting the consumer preference for long-term fixed-rate loans
as well as minimized the Bank’s exposure to interest rate risk. Currently,
the Bank’s fixed-rate real estate loan offerings are limited to maturity
terms up to fifteen years, with 100% of its thirty-year real estate loan demand
being sold to Freddie Mac.
Commercial Loans
The Company’s commercial loan portfolio consists of loans to corporate
borrowers primarily in small to mid-sized industrial and commercial companies
that include service, retail and wholesale merchants. Collateral securing these
loans includes equipment, inventory, stock, commercial real estate and rental
property. Commercial loans are considered to have a higher level of risk compared
to other types of loans (i.e., single-family residential mortgages, installment
loans and credit card loans), although care is taken to minimize these risks.
Numerous risk factors impact this portfolio, such as the economy, new technology,
labor rates, cash flow, financial structure and asset quality. The payment experience
on commercial loans is dependent on adequate cash flows from the business to
service both interest and principal due. Thus, commercial loans may be more
sensitive to adverse conditions in the economy generally or adverse conditions
in a specific industry. The Company diversifies risk within this portfolio by
closely monitoring industry concentrations and portfolios to ensure that it
does not exceed established lending guidelines. Underwriting standards require
a comprehensive credit analysis and independent evaluation of virtually all
larger balance commercial loans prior to approval. The Bank’s loan committee
will review and approve all new commercial loan originations that exceed the
originating loan officer’s lending limits according to the following thresholds:
up to $750,000 unsecured, up to $3,000,000 secured, and up to $3,000,000 aggregate.
The Executive Committee of the Bank’s Board of Directors will review and
approve all new commercial loan originations up to the legal lending limit of
the Bank.
Consumer Loans
Consumer loans are secured by automobiles, mobile homes, recreational vehicles
and other personal property. Personal loans and unsecured credit card receivables
are also included as consumer loans. The Company makes installment credit available
to customers in their primary market area of southeastern Ohio and portions
of western West Virginia. Credit approval for consumer loans requires demonstration
of sufficient income to repay principal and interest due, stability of employment,
a positive credit record and sufficient collateral for secured loans. The Company
monitors the risk associated with these types of loans by monitoring factors
such as portfolio growth, lending policies and economic conditions. Underwriting
standards are continually evaluated and modified based upon these factors. A
qualified compliance officer is responsible for monitoring the performance of
his or her respective consumer portfolio and updating loan personnel. The Company
makes credit life insurance and health and accident insurance available to all
qualified borrowers, thus reducing their risk of loss when their income is terminated
or interrupted. The Company reviews its respective consumer loan portfolios
monthly to charge off loans which do not meet applicable standards. Credit card
accounts are administered in accordance with the same standards as those applied
to other consumer loans. Consumer loans generally involve more risk as to collectibility
than mortgage loans because of the type and nature of collateral and, in certain
instances, the absence of collateral. As a result, consumer lending collections
are dependent upon the borrower’s continued financial stability and are
adversely affected by job loss, divorce or personal bankruptcy and by adverse
economic conditions. Also included in the category of consumer loans are home
equity loans. Home equity lines of credit are generally made as second mortgages
and charged a variable interest rate. Home equity lines are written with ten-year
terms but are reviewed annually. The Company’s consumer loans also consist
of seasonal refund anticipation loans (“RAL’s”) offered by
Loan Central during the tax season. RAL’s are short-term cash advances
against a customer's anticipated income tax refund.